ECB’s ‘vanguard of efforts’ to boost demand for green bonds

Green objectives will be at the heart of the European Central Bank’s €2.8trn asset purchasing programme


Anna Fedorova

Christine Lagarde, president of the European Central Bank (ECB), has promised green objectives will be at the heart of the Bank’s €2.8trn asset purchasing programme, drawing praise from the asset management industry for being at the “vanguard of efforts” to bolster demand for green bonds

In an interview with the Financial Times, Lagarde pledged to “explore every avenue available to combat climate change”, saying she will look at “greener” changes to all of the Bank’s operations to reach this objective.

The asset management industry has welcomed this commitment, saying the ECB is in a position to provide a strong boost to green finance.

Mark Haefele, CIO at UBS Global Wealth Management, said Lagarde’s pledge “puts the ECB in the vanguard of efforts by monetary policymakers to bolster demand for green bonds, one of our preferred asset classes”.

“We believe that the scope and degree of support from policymakers across the world will likely provide a boost for sustainable investments in the major asset classes,” he said.

Florence Pisani, global head of economic research at Candriam, said the ECB’s commitment could encourage both private and public actors to issue more green bonds in the future, while also showing banks that the ECB “practices what it preaches – i.e. protecting their balance sheets from climate risks”.

“It is also an opportunity for Christine Lagarde to send an important message to European governments: the ECB will do its part, now it’s important for Member States to reach an agreement and support the European Commission Green Deal as soon as possible,” she added.

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Fiscal support

However, Haefele believes that while monetary policy can provide a tailwind for sustainable investing, it is fiscal support that will be the biggest driver of green investments in both credit and equity markets.

We see potential for greater fiscal support in all regions of the world,” he said.

This includes the Sustainable Europe Investment Plan, which is set to “mobilize €1trn in public and private sustainable investment over the coming decade to achieve climate neutrality by 2050”, and the €750bn set aside for European countries worst hit by the pandemic, with €300bn of this earmarked for sustainable projects.

Sustainability is also a core issue in the US presidential election and a topic of growing importance in Asia, Haefele added.

See also: – Industry welcomes UK’s ‘green recovery’ plans for jobs and housing

Fund regulation

Meanwhile, the European Fund and Asset Management Association (EFAMA) has welcomed the European Commission’s new consultation on integrating sustainability risks and factors into fund regulatory frameworks.

The draft proposals from the European Commission (EC) address the obligations of mutual funds and alternative investment funds to advise investors on the social and environmental aspect of their investment under the UCITS, MiFID and AIFMD frameworks.

EFAMA said it fully supports the integration of sustainability risks at fund level as part of risk management policy, but has proposed a number of changes, saying the EC’s current proposals will not achieve the goal of “ensuring that sustainable investing becomes mainstream”.

Tanguy van de Werve, EFAMA director general, commented: “The question European policy makers are now faced with, is whether to create a standardised tick-the-box system – putting sustainability in a niche – or to opt for a flexible approach promoting dynamic developments in sustainable investing.

“We would definitely advise for the latter as a flexible approach will foster a sustainable European economy.”

Building a fair framework

According to EFAMA, if the EC’s goal is to ensure sustainable investing becomes mainstream, then it is essential to “avoid any conflicts between an asset manager’s regulatory obligations and their fiduciary duty to pursue its investment strategy in the best interest of the clients”.

As such, it said sustainability risks should not be singled out compared to other risks considered by asset managers within a risk management framework. At the same time, EFAMA believes asset managers should be permitted to assess sustainability risks on a qualitative basis.

EFAMA has also expressed concern that the current EC proposals will “hinder the availability of ESG products to investors”, as they introduce requirements that would make some existing ESG products non-compliant under MiFID II.

“It is therefore essential that the Commission makes changes to the current proposals to ensure that the final delegated acts are fully aligned with the Sustainable Finance Disclosures Regulation (SFDR),” EFAMA said.

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