ECB can do better than a green TLTRO
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Covered Bonds

ECB can do better than a green TLTRO

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The ECB is mulling the idea of green Targeted Longer-Term Refinancing Operations to boost green lending. It's a noble aim — but it should work with the policies it has first, if it is serious about environmental impact.

In response to a paper published earlier this month, ECB president, Christine Lagarde, said it would look into green TLTROs.

At the same time, board member Isabel Schnabel said the central bank was investigating how monetary policy could counter the risk climate change poses to price stability. Incentives could be introduced that favour sustainability-linked bonds and the ECB “could consider” treating bonds that conflict with the EU’s decarbonisation aims more punitively.

The ECB is the most influential force in the European bond market as it is and it should focus its efforts as Schnabel suggests before adding yet another liquidity scheme. 

Whatever green TLTROs achieve, the ECB's huge bond purchasing programme will — and does — counteract it by keeping funding costs low for environment wreckers.

The Centre for Climate Change Economics and Policy calculated that 62% of ECB corporate bond purchases take place in manufacturing, electricity and gas production and these are responsible for 58% of eurozone area greenhouse gas emissions. But that study was published three years ago and since then the subsidies have only grown. The ECB must be more discriminating.

To those that argue it would be too complicated to do so, there is already a Taxonomy in place by which to judge whose bonds it buys, not to mention a whole industry of firms judging corporate greenness. 

Also, the ECB already does discriminate in other markets. This week it announced it would no longer support repo structured covered bonds based on contract law. Months ago it excluded conditional pass-through covered bonds from its purchase programme. Why? It doesn't fancy the structure.

If the ECB can be that picky in the puny covered bond market for reasons so arcane, it can and must be more choosy in a bigger market where the stakes — and the effects of its decisions — could not be greater.

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