The Bank of Finland’s position regarding the decarbonization of the ECB

11th March 2021

Dear Governor Rehn,

2021 will be a decisive year for climate action. The COP26 in sight, it is now agreed-upon that the next few years will determine whether we keep global warming under 1.5 or even 2°C. The European Union and other major world powers like the United States and China are strengthening their climate pledges and building the tools to follow them. 

Finance will be key in achieving these goals. In fact, “Building a private finance system for net zero” is one of the priorities of the COP26. 

Fossil fuel production needs to decrease by at least 6% each year from 2020 to 2030 to keep global warming under 1.5°C. Therefore, reducing financial support to these high-carbon energies to redirect it to sustainable alternatives should be the utmost priority and ending all support to new fossil fuel project a pre-requisite to meaningful climate action. 

The European Central Bank cannot ignore this Momentum for climate action. In 2020, a growing number of voices have risen to make a simple point: climate action is not only compatible with the ECB’s mandate, it is needed to fulfill it and a responsibility of the bank. 

More than 167 000 Europeans are already calling on the ECB to stop supporting fossil fuel companies through its monetary operations and 80% of 24 000 Europeans surveyed by NGOs think climate should be the ECB’s top priority. They are backed by European MEPs that are asking the ECB to justify its carbon bias and to change its ways

ECB President Lagarde, and prominent ECB board members, have all stressed the necessity to integrate climate to the bank’s operations, notably by reviewing its “market neutrality” doctrine. The governor of the Banque de France even claimed he wanted to make the ECB “a pioneer central bank in the fight against climate  change”. Following this dynamic, the NGFS now distinguishes between “protective” and “proactive” measures, thus admitting that central banks and supervisors can have an active role in mitigating climate change. 

After announcing an ambitious carbon neutrality objective by 2035, Finland cannot stay silent. The Bank of Finland as the power to push the ECB to take bold steps to fight the climate crisis. 

A few key measures should be supported to make the ECB work for – and not against – climate without requiring any changes to its mandate:

  1. Align its asset purchasing programs and collateral frameworks with the Paris Climate Agreement, to support the low carbon transition
  2. Align its refinancing operations to the banking sector with the Paris Agreement to encourage more sustainable bank lending and fill the green investment gap
  3. Support asset markets for sustainable investment and coordinate operations with the European Investment Bank (or other equivalent European institutions) to ramp up green investment and lock-in a low carbon future.
  4. Implement prudential measures to increase the resilience of the European banking sector to climate risks and reduce brown financial flows (e.g. financing of fossil fuels). 
  5. Lead by example on climate disclosures and transparency by assessing and regularly communicating to elected officials the alignment of its operations with the Paris Agreement and that of the European banking sector.

Recent studies by Banque de France and the ECB showed that decarbonizing both asset purchases and the collateral framework would have concrete effects on emissions. Furthermore, several central banks started using climate conditions on their monetary policy. If these first measures are far from sufficient, they show that climate criteria can be used without further delay. 

“Market neutrality” should not be an obstacle. As you rightfully underlined, the market is not pricing climate risks, and therefore the current “market neutrality” principle rigs ECB operations with a carbon bias. Christine Largarde, Isabel Shnabel, François Villeroy de Galhau, Klaas Knot all suggested that market neutrality should be reviewed. We hope that The Bank of Finland  will push for an ambitious revision of this principle, to allow the ECB to contribute to the fight against climate change, not to block it.

As the ECB’s response to Covid will exceed 5 000 billion euros in 2020-2022, we cannot wait for the end for the strategy review to end. If some of the proposed measures could be difficult to immediately implement, a few emergency measures could be taken to mitigate the climate impact of the ECB’s Covid response and back its climate pledges. The ECB could notably exclude fossil fuel companies from its asset purchases and set-up a “green TLTRO” pilot program to support energy efficiency work all around the Union

The Bank of Finland has the influence to drive a swift and meaningful decarbonization of the European monetary policy. It should launch this dynamic by implementing strong climate requirements on its own portfolios. Building on its the Principles for Responsible Investment the bank signed in 2019 and the ESG criteria it already applies, The Bank of Finland  could easily adopt criteria to reduce its investments in fossil fuels, thus advertising its climate commitment and sending a positive signal to Italian financial institutions. It could notably take up the Banque de France’s decision to drastically reduce its fossil fuel investments, with a swift exit of coal, divestment from companies significantly involved in unconventional hydrocarbon and the opposition to any new fossil fuel project of investee companies. By doing so, the bank would also contribute to the recent pledge of Eurosystem central banks to improve and harmonize their investment policies

We would like to discuss these propositions with your teams during a call and are at your disposal to provide more detailed recommendations and analysis.


Paul Schreiber


Reclaim Finance

Vera Kauppinen 

Campaign specialist

Coal-free Finland

The letter with references