Financial Regulation Matters: Lagarde Seeks to Assert the ECB’s Dominance – and ...

....Lagarde spoke recently and in emphasising her unhappiness with the development of sustainability in the marketplace, declared that ‘climate risks are not adequately priced’. The article in Bloomberg’s Quint offering suggests that she may lead the ECB in a new direction, with the decisions on which companies and industries to lend support to would be tied to compliance to EU policies on the issue of tackling climate change. The suggestion is that Lagarde could take the ECB down one of two paths; the soft path being to urge companies to better disclose climate risks that they face, and the more extreme path of judging who should benefit from the ECB’s mammoth bond-buying programme in relation to their compliance with EU regulations on non-financial informational disclosure, and the wider Action Plan that will contribute to the eventual goal contained within the European Green Deal. There are a number of arguments against this more extreme approach, mostly consisting of the lack of authority for the ECB to do this. Furthermore, the EU is seeking to become a ‘less is more’ style institution, which goes against the concept of the ECB becoming the enforcement vehicle for the Action Plan. However, analysts from Hermes have been cited as saying ‘the ECB has been very vocal about its intentions to continue to fight the climate crisis… its ambitions are very serious’. For Lagarde, she has rightly bemoaned the understanding that information that is currently being declared is ‘at best inconsistent, largely incomparable, and at times unreliable’. Whilst the ECB does have the mandate to support the EU’s economic policies, it rarely does so in such an explicit manner. Options that have been suggested range from introducing adjusted ‘haircuts’ that could be applied to securities after their climate risk has been assessed, to outright exclusion from purchasing programmes. If the ECB does decide to take a more direct approach, the credit/sustainable rating environment could be impacted.

This is because the disclosure of non-financial information is of, arguably, crucial importance for the development of the two interconnected industries...

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Financial Regulation Matters: Lagarde Seeks to Assert the ECB’s Dominance – and ...