Central Banks’ Green Goals Are Raising Red Flags
There is growing concern that central banks’ balance sheets, which have ballooned after a decade of asset-purchase programs, are skewed toward holdings that impede the transition to a green economy. But there is also deep disagreement about how policymakers should respond.
LONDON – It might seem surprising that, amid all the challenges central banks are facing nowadays, their contribution to combating climate change has risen close to the top of policymakers’ agenda. But a closer look reveals why: central banks’ balance sheets, which have ballooned after a decade of asset-purchase programs (so-called quantitative easing) may be skewed toward holdings that impede the transition to a green economy.
For example, researchers at the London School of Economics concluded that, although energy utilities make up only 5% of euro-denominated corporate bonds, they accounted for 25% of the European Central Bank’s bond purchases from 2014 to 2017. Likewise, Greenpeace estimates that fossil fuels comprised about a quarter of the ECB’s asset purchases during the first wave of quantitative easing.
Given this, the renewed focus on the ECB’s asset-purchase strategy in response to the COVID-19 crisis is understandable. But it is relatively new territory for central banks, so it is also understandable that reaching a consensus on their appropriate role in climate policy is not easy.