Central banks and prudential supervisory authorities (where different) have already started to look at climate related risks at the financial stability side. Should they also take carbon intensity of assets into account at the monetary policy side? So far, the guiding principle has been ‘market neutrality’ in the implementation of monetary policy. However, the market has a carbon bias, as capital-intensive companies are more carbon intensive. This paper, first, examines the legal mandate. The secondary objective of the Eurosystem is to support the general economic policies in the European Union, which include sustainable development and a high level of protection and improvement of the quality of the environment. Next, the paper explores how the Eurosystem could steer their asset and collateral policy towards low carbon assets and thus support the greening of the economy. Our initial findings suggest that such a low carbon allocation can be done without interference with the transmission mechanism of monetary policy. Price stability, the primary objective, is, and should remain, the priority of the Eurosystem.

Monetary Policy, Collateral, Central Bank, Eurosystem, Environmental Policy, ESG, Sustainable Development
Monetary Policy (Targets, Instruments, and Effects) (jel E52), Central Banks and Their Policies (jel E58), Agricultural and Natural Resource Economics; Environmental and Ecological Economics: Sustainable Development (jel Q01), Pollution Control Adoption Costs; Distributional Effects; Employment Effects (jel Q52), Climate; Natural Disasters; Global Warming (jel Q54)
dx.doi.org/10.2139/ssrn.3242814, hdl.handle.net/1765/112010
Rotterdam School of Management (RSM), Erasmus University

Schoenmaker, D. (2018). Greening Monetary Policy. doi:10.2139/ssrn.3242814