Bundesbank chief u-turns on climate-tilting ECB bond purchases

Jens Weidmann, President of the Deutsche Bundesbank, has said the European Central Bank (ECB) will have to climate-tilt its corporate bond buying programme if the financial market cannot adequately assess climate change risk.

The comments indicate a shift in his views on how central banks should tackle climate change, with Weidmann in the past saying that central banks should follow the principle of “market neutrality” and it is not their role to “correct market distortions and political actions or emissions”.

Speaking yesterday afternoon at the Green Swan conference hosted by the Bank for International Settlement (BIS), Weidmann maintained his prior views that central banks, in addressing climate change, should promote disclosure from the market and proper consideration of climate risk by rating agencies and issuers. 

But he added that these “measures cannot be introduced immediately” and said in their place “the Eurosystem would have to adopt alternative measures to properly incorporate climate-related financial risks into its risk management, for example by limiting the maturities or the amount of corporate bonds of certain sectors and issuers”. 

Weidmann, who is also a governing member of the ECB, has been seen as a vocal barrier to ECB President Christine Lagarde’s push on climate change measures. His comments this week suggest a change of heart as ECB board members and governors debate the issue as part of its strategic review due to be completed this summer. 

It comes as the Bank of England is starting work on “greening” its corporate bond buying programme with a new discussion paper on tilting its corporate bond buying programme towards issuers doing the most to decarbonise their businesses.

Speaking at the BIS event this week, Andrew Bailey, Governor of the Bank of England said he hoped that the “change will by example influence how larger investors take account of climate risks in their own asset allocation decisions”. 

Elsewhere, Weidmann also called for mandatory climate change disclosure yesterday. A number of top central banks have been urging action on the issue, including Federal Reserve Governor Lael Brainard and Banque de France Governor François Villeroy de Galhau, who has reportedly said a global agreement on standardised climate change disclosure will be agreed at COP26 in November.