ECB steps up climate work with focus on green transition

On 30.01 the European Central Bank (“ECB”) presented its 'Climate and nature plan 2024-2025' (“Plan”).

It should first be noted that the growing impact of the climate crisis on the economy and the financial system calls for more action. The ECB reaffirms its commitment to climate action, which will be reviewed periodically.

Indeed, the ECB needs to account for the effects of climate change in the conduct of its tasks within its mandate. Additionally, without prejudice to its price stability objective, the ECB must support the general economic policies in the European Union, with a view to contributing to a high level of protection of and improvement in the quality of the environment. This includes the goals of the European Climate Law. Under Article 11 of the Treaty on the Functioning of the European Union, the ECB is also required to integrate environmental protection requirements into the definition and implementation of its policies and activities.

The ECB has decided to expand its work on climate change, identifying three focus areas that will guide its activities in 2024 and 2025:

1. the impact and risks of the transition to a green economy, especially the associated transition costs and investment needs. The ECB will intensify its work on the effects of transition funding, green investment needs, transition plans and how the green transition affects aspects of the economy such as labour, productivity and growth. The results will also inform the ECB’s macro modelling framework. Furthermore, the ECB will explore, within its mandate, the case for further changes to its monetary policy instruments and portfolios in view of this transition;
2. the increasing physical impact of climate change, and how measures to adapt to a hotter world affect the economy. The ECB will deepen its analysis of the impact of extreme weather events on inflation and the financial system, and how this can be integrated into climate scenarios and macroeconomic projections. It will also assess the potential impact of adaptation, or lack thereof, to climate change on the economy and financial sector, including related investment needs and the insurance protection gap;
3. the risks stemming from nature loss and degradation, how they interact with climate-related risks and how they could affect the ECB’s work through their impact on the economy and financial system. The ECB will analyse the close link with climate change, and the associated economic and financial implications. It will also further explore the role of ecosystems for the economy and the financial system.

ECB, furthermore, with regard to its own operations, will launch its eighth Environmental Management Programme to support achieving its 2030 carbon reduction targets. Together with the entire Eurosystem, its work will include eco-design principles for the future euro banknote series and incorporate environmental footprint considerations into the design of a digital euro that is currently in the preparation phase.

The decision to step up efforts in these areas follows the ECB’s stocktake of its climate actions since launching its 2022 climate agenda, and an adjustment of its work plan in the light of the changing environment and improvements in data availability and methodologies.

The work planned for these focus areas will complement the ECB’s current climate-related actions in its ongoing tasks, including monetary policy and banking supervision. The ECB will improve its climate-related indicators, risk monitoring and disclosures, and continue to contribute to the development of climate-related policies in European and international fora. Looking ahead, the ECB remains committed to regularly reviewing these actions to ensure they are fit for purpose and contribute to fulfilling its mandate.

ECB ongoing actions

The ECB will continue to act on the following fronts:

Macroeconomic analysis and monetary policy:

• further improve the analytical tools to assess and project the impact of climate change and the green transition on the macroeconomy;
• enhance the management of climate change risks on the Eurosystem balance sheet and collateral framework, and consider climate change in the preparation of monetary policy

Banking supervision and financial stability:

• continue to address climate-related and environmental risks (a supervisory priority for 2024-2026);
• enhance the framework to identify, assess and mitigate climate-related risks to financial stability;
• further integrate climate risks into prudential frameworks and support rules for better climate-related disclosures in European and international fora

Climate-related data:

• improve the set of climate-related indicators and support work on establishing international statistical standards in this domain

The ECB’s corporate sustainability:

• strive to reduce the environmental footprint of its own operations and non-monetary policy financial portfolios;
• consider environmental aspects in tasks related to banknotes and market infrastructure and payments;
• report publicly on the climate-related work in the regular disclosures