FRANKFURT The European Central Bank should consider climate risk when buying assets or accepting them as collateral, top ECB policymakers said on Monday though Bundesbank President Jens Weidmann cautioned that price stability not saving the planet remained the ECB's top priority.
Joining the fight against climate change, possibly also via bond purchases, has been a key goal of ECB President Christine Lagarde since taking the helm just over a year ago.
ECB Board member Fabio Panetta and Weidmann called for taking climate-related risk into account when conducting monetary policy.
Panetta said the ECB could help when the market fails to price climate-related risk correctly.
"By performing its own analysis of these risks on the basis of rigorous methodologies, the ECB can contribute to the accurate valuation of ... climate-related risks," Panetta said.
While Panetta was mainly referring to the ECB's lending operations for banks, policymakers are debating what role climate considerations should play in the institution's purchases of corporate bonds.
Weidmann reaffirmed the ECB should only accept assets "if their issuers meet certain climate-related reporting requirements" but warned against going too far down that route, for example by excluding carbon-intensive enterprises.
And he said the ECB should be prepared to stop those bond purchases when inflation rises and not let the fight against climate change get in the way of its main goal.
"An active role in climate policy could undermine our independence and, eventually, jeopardise our ability to maintain price stability," Weidmann said.
So far, the ECB has bought credit based on outstanding amounts but Lagarde has said in the past the bank might have to consider a more active approach.
"Climate change can create short-term volatility in output and inflation through extreme weather events, and if left unaddressed can have long-lasting effects on growth and inflation," Lagarde said.
The ECB said on Monday it was creating a team of around 10 ECB employees, reporting directly to Lagarde, to set the central bank's agenda on climate-related topics.
It also said it would invest some of its own funds, which total 20.8 billion euros ($25.3 billion) and include capital paid in by euro zone countries, reserves and provisions, in a green bond fund run by the Bank for International Settlements.
(Reporting by Balazs Koranyi and Francesco Canepa; Editing by Emelia Sithole-Matarise and Nick Macfie)