Lagarde’s green ambition risks losing out to ECB inflation goal

Bloomberg

European Central Bank (ECB) president Christine Lagarde is discovering that her grand ambitions for fighting climate change will have to take a back seat to her new job of reviving inflation.
Lagarde came to the Frankfurt-based ECB pledging to bind environmental concerns much more closely into policy decisions — echoing her strategy when she ran the International Monetary Fund. Six weeks into the post, she’s refining her message after a clamor of warnings from colleagues such as Bundesbank President Jens Weidmann that their scope is limited by their mandate.
It means the Frenchwoman, who holds her first policy meeting on Thursday, now faces the risk of disappointing a chunk of the public at a time when climate issues are high on the global agenda. Her plans for a strategic review have built up expectations that the ECB will consider using its huge presence in debt markets to boost the growth of so-called green bonds that fund environmentally friendly projects.
Lagarde’s thinking has emerged in her two recent appearances before the European Parliament. In September, for her confirmation hearing, she signalled that she was ready to make aggressive strides towards environmental objectives. Last week, in her first testimony
as ECB chief, she appeared to pull back, saying the governing council — which she heads — will decide what to do, and fighting climate change is not its top priority.
“It’s not for the ECB or any other central bank to change its remit for something like climate change. That’s not to say that climate change isn’t humongously important,” said Tony Yates, a former adviser at the Bank of England. “If governments, on whose behalf central banks ultimately operate, if they can agree to anti-climate-change policies, which essentially are a set of taxes, then there’s no need for central banks to do anything.”
It’s clear that Lagarde has tapped into the zeitgeist. Before last week’s testimony in Brussels, she met with non-governmental organisations who delivered a letter pushing her to be proactive. Ester Asin, director of the WWF European policy office, said the ECB’s priority must be to “stop supporting carbon-intensive sectors like fossil fuels and dramatically increase its purchases of green bonds.”
One area where the president does seem to see room for maneuver is whether quantitative easing should remain market neutral. In both parliamentary sessions, she signalled that the ECB could adopt pending European standards defining sustainable investments — what the European Commission calls a “taxonomy” — that might help skew purchases away from carbon-intensive brown bonds to green ones.
That’s controversial for many policy makers though. ECB has attached great importance to neutrality to avoid accusations of making judgments that are best left to elected governments.