By Balazs Koranyi and Frank Siebelt
FRANKFURT, Aug 31 (Reuters) – The coronavirus pandemic
demonstrates in the clearest terms why central banks must take a
bigger role in fighting climate change even if the issue at
first appears unrelated to monetary policy, European Central
Bank board member Isabel Schnabel said.
Initially just a health crisis, the pandemic has set off
economic shockwaves around the globe, affecting every nation and
forcing central banks to provide unprecedented support to
underpin economic activity.
With climate change posing an even bigger risk, the ECB must
keep this issue high on its agenda as it reviews its policy
framework, Schnabel told Reuters in an interview.
“Climate change is probably the biggest challenge we are
facing, much bigger than the pandemic,” Schnabel said.
“Even though this health shock was entirely unrelated to
monetary policy, it nevertheless has huge implications for
monetary policy,” she said. “The same is true for climate change
and this is why central banks cannot ignore it.”
Through its supervisory arm the ECB could require banks to
provide a climate risk assessment, which could then affect their
access to central bank funding if this assessment has a direct
implication on collateral valuations, Schnabel said.
The central bank should also push the European Union to add
a green element to its long-delayed project to set up a capital
markets union as a focus on green finance could give the bloc a
competitive advantage, she argued.
Schnabel, who in the past has expressed scepticism about
skewing ECB bond purchases towards green bonds, added that her
view on the topic was still “developing”.
“There is the view that we should stick very closely to
market neutrality,” she said. “And there is the alternative view
that markets are not pricing climate risks properly, so there is
a market distortion and therefore market neutrality may not
actually be the right benchmark.”
Already one of the biggest buyers of green assets, the ECB
holds around 20% of the green bonds that are eligible for its
purchases, leaving little scope for more buys under its current
For Schnabel’s views on monetary policy, click on
(Reporting by Balazs Koranyi and Frank Siebelt; Editing by Hugh