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When Central Banks outline their Options for Climate Action

Our analysis of the latest NGFS report on the “greening” of monetary authority actions

Wojtek Kalinowski & Jézabel Couppey-Soubeyran, 14 May 2021

[English] [français]

As the European Central Bank (ECB) prepares to define its strategy on environmental sustainability, the global network of central banks NGFS explores the “greening” of monetary policy in its new report. However, as in previous reports, calls for action are tempered by analysis of the many risks that might be associated with central bank climate “activism”.

All in all, the NGFS seems less concerned about the risks of insufficient action than about the risks of resolute “greening”. The underlying assumption is that there is a trade-off between central bank climate action and the effectiveness of its monetary policy.

The report warns of many contradictions between the new and old objectives of monetary policy, but does not suggest any way of defining priorities. In the end, it seems to be paving the way for “little touches of green” rather than “broad strokes”. Contrary to the NGFS’ assumptions, the greening of monetary policy could be seen as a means of reconnecting bank activity to useful financing, i.e. as a source of greater efficiency for monetary policy and central bank action.  

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This note benefited from the valuable comments of Emmanuel Carré, Hugues Chenet and Dominique Plihon.

Translated from French by The Translation People

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