Central banks must stay neutral on climate policy, German Bundesbank says
Clean Energy Wire / Financial Times
The German central bank (Bundesbank) has to maintain market neutrality and cannot become a proactive advocate of climate action, Bundesbank head Jens Weidmann said at a conference in Frankfurt. "Our mandate is to maintain price stability," Weidmann said, adding that the Bundesbank lacks "democratic legitimation" to intervene in climate policy. "Monetary policy that explicitly pursues environmental policy goals is at risk of becoming overstrained," he said. Weidmann acknowledged that "climate risks touch upon the core business areas" of central banks but rejected the idea of "green monetary policy", for example through so-called green quantitative easing, meaning that the central bank purchases green bonds to increase the economy's monetary liquidity. The Bundesbank head cautioned that target conflicts between environmental and monetary policy could arise if the central bank is forced to reduce the purchase of green bonds for financial stability purposes.
Bundesbank sustainability head Sabine Mauderer said central banks nevertheless could be "trailblazers for more sustainability" by adapting their own investment portfolios and acting as a role model for other investors. Mauderer said the costs of climate damages and the financial risks of major transformations in the economy, for example the phase-out of fossil fuels, needed to be better included in financial supervision and called for introducing "climate stress tests" in financial market surveillance.
In an article for the Financial Times, Martina Arnold and Olaf Storbeck write that the Bundesbank's position might clash with that of designated European Central Bank (ECB) head Christine Lagarde, who said tackling climate change would become a “mission-critical” priority at the ECB once she assumes office in November. Germany's government has commissioned an advisory council with devising a strategy to better align the country's financial policy with climate targets and recently called for a "global consensus" on addressing climate in finance.