Belgium’s central bank to face courts over ‘carbon bias’ in QE

Campaigners say central bank policies must support national and regional climate goals

Belgium’s central bank will face legal action over exposure to carbon-intensive assets in its quantitative easing (QE) programme, in a move that has been welcomed by economists. 

Law firm ClientEarth has announced landmark legal action against the Belgian National Bank for “failing to fulfil environmental protection and human rights requirements when purchasing corporate assets, many of which are from companies that are fuelling the climate crisis”. 

Since 2016, the central banks of Belgium, Germany, France, Spain, Italy and Finland have been part of the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP) to improve financing conditions for Eurozone businesses.

The Belgian National Bank has been responsible for purchases from companies across the greatest number of Eurozone countries, holding 426 of the 1,642 bonds under the programme – including from oil companies Shell, Eni and Schlumberger. 

According to ClientEarth, fossil fuel companies are in fact among the biggest benefactors of CSPP, with more than half of the $266bn of assets held issued by high emitting firms.

Simon Youel, Head of Policy & Advocacy, Positive Money, said: "Central banks have core mandates to support the policies of governments, which are signed up to legally binding climate commitments; yet too often do central bank policies like corporate bond purchase schemes undermine governments by supporting companies whose business models are fundamentally incompatible with these goals. 

ClientEarth are right to pursue litigation against the Belgian National Bank, and it will be a useful tactic to explore in making sure the market-shaping policies of central banks across the globe are helping rather than hindering the green transition."

 The Governor of the Belgian National Bank, Pierre Wunsch, has said that a major role in tackling climate change could go beyond the ECB’s mission and competence and he is not comfortable making such ‘political’ decisions.  

 ClientEarth’s lawsuit against Belgium’s central bank was filed in Belgian courts, but it asks for the European Court of Justice to decide whether the ECB’s purchase programme is valid or invalid, in order to determine whether the Belgian National Bank’s actions carried out under that policy are legal.

ClientEarth argues that the ECB failed to assess the climate impact of buying corporate assets through the programme, despite its legal obligations to do so. If supported, ClientEarth asks the court to order the Belgian central bank to stop purchasing bonds under the programme. The ECB would have to take all measures appropriate to remedy the illegality.

ClientEarth has also written to the ECB’s Executive Board and Governing Council on the central bank’s legal obligations related to climate change, urging them to use an upcoming strategy review as an opportunity to reform the purchase programme.

The central bank’s approach to the purchasing programme has so far been centred on ‘market neutrality’, but ClientEarth argues that this has given rise to inherent carbon bias.

"The ECB needs to stop using the myth of ‘market neutrality’ to justify purchasing assets of climate-wrecking companies and must take immediate action to align its monetary policy with the goals of the Paris Agreement," Jamie Sawyer, ClientEarth lawyer said.