European Central Bank facing questions from MEPs over ethics in quantitative easing purchases

€125m holding of Austria’s Novomatic under scrutiny

The European Central Bank is facing scrutiny over the ethics of buying bonds of Austrian gambling technology company Novomatic as part of its quantitative easing programme.

A group of MEPs from the Socialists & Democrats (S&D) grouping within the Parliament has submitted a question for a written answer to the ECB, saying: “In December 2016, under the corporate sector purchase programme, the European System of Central Banks [Eurosystem] apparently invested €125m in bonds issued by Novomatic, a gaming industry giant.”

The corporate sector purchase programme (CSPP), initiated in June 2016, was part of the ECB’s wider asset purchase program (APP) – better known as quantitative easing (QE).

The expansionary monetary policy was set in train in the wake of the financial crisis. As at June this year, the ECB’s CSPP holdings were €92bn.

The S&D members wrote: “In the light of Parliament’s recent resolutions on online gambling, the ruling in which the Court of Justice underlined the fact that Member States are free to combat gambling, and the efforts which many European governments are making to curb it, bearing in mind that gambling has high social costs and causes pathological addiction, poverty, and, worst of all, social degradation within gamblers’ families:

“Does not the ECB consider the selection criteria whereby this financing was authorised to be at odds with EU policies and values? Does it not think that financing of this kind requires prior assessment of the ethical and social implications entailed?”

Just yesterday, Responsible Investor reported that the EU’s High Level Expert Group (HLEG) on Sustainable Finance has debated a potential code of ethics for investment professionals.

Novomatic, where Austrian F1 legend Niki Lauda is a brand ambassador, says in its latest annual report that its seeks to “develop our ecological and social footprint in a sustainable and positive manner.” It has in place a Responsible Gaming Code and a Responsible Marketing Code.The ECB makes no secret that it did not choose assets in the QE programme based on environmental or social criteria.

In an economic bulletin in July, it said: “While the ECB shares the view that an awareness of environmental issues, together with ethical and socially responsible behaviour, are important for society, it is nevertheless up to political decision-makers (in the first instance) to agree on, define and promote appropriate policies and measures.

“It is not, however, possible to embed these into a large-scale asset purchase programme that is carried out as a temporary monetary policy measure over a relatively short period of time.” To do so would “limit the effectiveness” of QE.

But it did say that the Eurosystem had bought some assets classified as ‘green bonds’. “The holdings of these bonds are broadly in line with their weightings in the benchmark.”

In a separate development, last month a group of Green MEPs called on the ECB to outline its response to the Paris climate agreement. “As an institution of the EU, a party to the Paris Climate Agreement, does the ECB consider that it is bound by the aims of the agreement and that it should align its activities with them?” they asked.

“If so, what steps will the ECB take to ensure that its policy is adjusted accordingly?”

ECB President Mario Draghi replied saying that “the correct pricing and supervision of financial risks stemming from climate change are key to promoting sustainable development and preserving a well-functioning financial system”. The bank supports the work of various international fora, he added.

The ECB, which holds its latest interest-rate setting Governing Council meeting tomorrow, has yet to respond to the S&D question. An ECB spokesperson told RI it would be published on its website once it is ready.

Earlier this month RI reported that the Parliament had called on pension funds and other financial institutions to commit to divesting fossil fuels.