European Central Bank, Quantitative Easing & Climate

By Clara McDonnell September 18, 2020

Reclaim Finance, an organisation that aims to make the financial sector compatible with a sustainable future, published a recent report investigating the links between the European Central Bank’s policies and fossil fuel companies. Read our key takeaways from the report below.

What is quantitative easing? 

Quantitative easing is a monetary policy that allows central banks, such as the European Central Bank , to purchase bonds from public institutions, corporations, or banks, with the intention of increasing the amount of money in circulation, and promoting economic activity. Quantitative easing has been used intensively by the ECB since 2014, and increasingly during the COVID-19 crisis. The ECB plans to buy €1470 billion worth of assets in 2020-2021, as a response to the COVID-19 crisis. 

What does quantitative easing have to do with fossil fuels? 

The assets purchased by the ECB are not transparent. Reclaim Finance discovered through study of a list of holdings under corporate asset purchase programs that the ECB is financing companies active in fossil fuels, such as Shell, Total and Eni. The ECB continues to finance even the “dirtiest” fossil fuels, supporting ten corporations active in the coal sector. In addition to fossil fuel companies, the ECB is also financing companies in high-carbon sectors, such as airlines. The information they were able to access was limited to only a couple of the various asset purchase programs, as the ECB does not provide information on the climate impact of other existing programs. 

The ECB is also fueling the fossil gas “frenzy”. 24 companies that are benefiting from asset purchases by the ECB which operate and extract fossil gas in Europe and worldwide, and have plans to expand their extraction and construction of new pipelines and gas terminals. 

To summarise, the report demonstrates that “the ECB’s portfolio is mainly composed of carbon-intensive sectors, is more exposed to fossil fuels and less to low-carbon transports than the rest of the market, and is not aligned with the European climate targets”. Buying these assets not only supports fossil fuel companies and puts climate objectives in jeopardy, it also subjects the ECB to significant risk of stranded assets in the future. 

Reclaim Finance’s recommendations for the ECB:  

  • Exclude corporations from their list of eligible assets who do not adopt a detailed plan to phase out coal, gas and oil, those who are developing new fossil fuel projects, and those who do not adopt a plan for alignment with a 1.5°C future 
  • Adopt a “brown taxonomy” in addition to their “green taxonomy”, which would highlight corporations who participate in environmentally damaging activities 
  • Improve transparency, by publishing values of assets purchased under quantitative easing programmes

Read the full reports here: 

Quantitative Easing and Climate: The ECB’s dirty secret 

Quantitative Easing and Climate 2: Fueling the fossil gas frenzy