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Lagarde Sees Governments on Front Line of Climate-Change Fight

Lagarde Sees Governments on Front Line of Climate-Change Fight

European Central Bank President Christine Lagarde pointed to governments as the prime authority in fighting climate change, backtracking further from earlier suggestions that monetary policy could take on a key role.

Reducing incentives for carbon-intense investments and rewarding the adoption of more sustainable technologies and business models is “first and foremost a task of democratically elected governments and public authorities,” Lagarde wrote in a letter to European Parliament members. “Carbon pricing through fiscal measures remains the optimal tool.”

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It’s the latest effort by the Frankfurt-based ECB to lower expectations that large-scale asset purchases, which restarted in November, will soon be skewed toward favoring green bonds. After signaling during her confirmation hearing in September that she was ready to make aggressive strides toward environmental objectives, Lagarde has since somewhat pulled back. Earlier this month, she said safeguarding price stability supersedes fighting climate change.

Read more: Lagarde’s Green Ambition Risks Losing Out to ECB Inflation Goal

In her letter, Lagarde noted that the ECB and the region’s national central banks have bought “considerable amounts” of green bonds, both from the public and the private sector.

The ECB also found that assessing the carbon intensity of an entire sector -- as done in several studies gauging the climate impact of its bonds purchases -- can be misleading because data don’t capture differences within sectors and dynamics within firms over time.

“Significant data gaps remain a major obstacle,” Lagarde wrote, pointing to a lack of harmonized, firm-level information on carbon footprints, and the absence of commonly agreed definitions of what qualifies as sustainable.

She said the ECB supports the development of a European code, and that continued analysis will inform the central bank’s planned review of its monetary-policy strategy.

“Let me emphasize that climate change is an urgent and major challenge, calling on all stakeholders to play their part,” Lagarde wrote.