ECB must incorporate climate change into policy approach: Villeroy

[November 20, 2020]  PARIS (Reuters) - The European Central Bank needs to address climate change in its approach to monetary policy, ECB policymaker Francois Villeroy de Galhau said on Friday.

 Governor of the Bank of France Francois Villeroy de Galhau speaks during a news conference at the G7 finance ministers and central bank governors meeting in Chantilly, near Paris, France, July 18, 2019. REUTERS/Pascal Rossignol

He stopped short of calling for the ECB to skew its bond purchases in favour of green assets.

Speaking to an online session of the Ambrosetti forum, Villeroy said that tackling climate change was not "mission creep" for the central bank.

"We must deal with climate change, precisely in the name of our price stability mandate," said Villeroy, who is also head of the French central bank.

"Climate change obviously has powerful long term impact on the level of prices (starting with energy) and the economic outlook. But we already see its short terms effects: think of the wildfires, or of the structural changes at work in the European automotive industry," he said.

ECB President Christine Lagarde and board member Isabel Schnabel have argued that markets are not appropriately pricing climate risk and say the ECB should review its commitment to market neutrality, under which it does not favour certain assets over others.

Bundesbank chief Jens Weidmann warned this week against giving up on market neutrality, saying "it is not up to us to correct market distortions and political actions or omissions".

Side-stepping the faultline between fellow policymakers, Villeroy said that the ECB need to incorporate climate change in its economic models and projections.

Meanwhile, at an operational level, the ECB needed to assess climate-related risks in the framework it uses to accept collateral, he added.

(Reporting by Leigh Thomas; Editing by Angus MacSwan)

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