ECB raised share of green bonds in its funds portfolio to 3.5% last year, planning to increase it further in coming years
Green bonds skyrocketed in the euro area to €75 billion in 2020, a sevenfold increase since 2015 and making up 4% of the total corporate bond issuances, said the head of the European Central Bank (ECB) on Monday.
In a conference on green banking, Christine Lagarde reiterated the bank’s determination to lead in innovation and investment in the sector.
“The ECB raised the share of green bonds in its own funds portfolio to 3.5% last year and is planning on raising it further as this market is expected to grow in the coming years,” she said in her address to the Institute for Law and Finance (ILF) conference on green banking.
She noted equity-based green finance reduced the carbon footprint of the equity funds.
Lagarde added: “Assets under management by investment funds with environmental, social and governance mandates have roughly tripled since 2015, and a little more than half of these funds are domiciled in the euro area.”
Other central banks are also aligning decisively their investment decisions with sustainability criteria, she noted.
Acknowledging that significant green innovation and investment required a complex ecosystem, Lagarde said finance was at the heart of the issue.
“We expect to see increasing availability of green finance,” she said, adding there are now signs that policy action to fight climate change is speeding up, especially in Europe.
Lagarde also said adequate carbon prices and greater information on exposures to climate change would provide incentives to decarbonize, accelerating the transition to a carbon-neutral economy.
“The effective price of carbon is expected to rise if the EU’s targets for reducing emissions are to be reached.
“Modelling by the OECD and the European Commission suggests that an effective carbon price between €40-60 [$48.50-72.80] is currently needed, depending on how stringent other regulations are,” she said.
The ECB is set to establish a new climate change center to determine the “targets, policies and regulations” to underpin the transition to a carbon-neutral economy.
It aims to expand the financial system’s understanding of climate risks and its ability to manage them.
The ECB has required banks to conduct climate risk self-assessment and draw up action plans, which the bank will start reviewing this year.
It will conduct a bank-level climate stress test in 2022.
View: More news