FRANKFURT: The European Central Bank's lending schemes disproportionately favour polluters, think tank New Economics Foundation argued on Tuesday (Mar 9), calling for new rules that benefit "green" companies and punish energy intensive firms.
With €1.8 trillion (US$2.1 trillion) in outstanding loans to banks, the ECB has become the single biggest source of funding for the eurozone economy and its plan to keep increasing its balance sheet indicates an oversized role for years to come.
But the ECB tends to ask for less collateral on carbon intensive corporate assets, implicitly encouraging fossil fuel companies to tap bond markets, the think tank argued.
"The collateral framework is not only at odds with democratically defined goals of the Paris Agreement and the EU’s Green Deal, but it also actively underpins financial market failures and reinforces the carbon lock-in," the group said in a report.
Alternatives to the current framework include tougher collateral pricing for polluting firms to excluding assets from fossil fuel and energy intensive companies, the report argued.
The ECB, which is conducting a broad policy review, has acknowledged that markets are failing to properly price carbon intensive assets and promised to take on a bigger role in fighting climate change.
But policymakers disagree on the specific measures it should take and options include a wide array of proposals from forcing banks to make greater climate-related disclosures to skewing asset purchases away from polluters.
"The principle of market neutrality is increasingly challenged on the ground that it may reinforce market failures that decelerate society’s transition to a carbon-neutral economy," ECB board member Isabel Schnabel said last week. "One may question whether the market is the appropriate benchmark."