Governor of the Bank of Estonia Madis Müller replied to the interpellation concerning the pressure from the European Central Bank on the Basel Committee (No. 628), submitted by  Members of the Riigikogu Rain Epler and Martin Helme.

Müller replied to the question on whether he thought the European Central Bank and national central banks should actively engage in climate policy and why they should do so.

According to Müller, it is important to recognise that the central bank is not, and in his view should not be, involved in climate policy making. “This is clearly the task of national governments and parliaments. The main task of the Bank of Estonia in Estonia, and the European Central Bank’s main task in the euro area, is to do everything in the central bank’s power to ensure that price increases are moderate enough and that the euro, as our currency, thus does not lose its value too quickly,” Müller said.

He explained that issues relating to climate concerned central banks in two ways. First, both climate change itself and climate policy can have a fairly direct impact on the economy and on different prices. That is why we need to take both into account as much as possible in our economic analysis as well as in monetary policy making. Second, and this may be a little-known piece of information, but in addition to its core mandate, the European Central Bank has a secondary mandate under the European Union Treaties, which stipulates that as long as this does not conflict with the central bank’s core task of making efforts to ensure price stability, the European Central Bank should also support  in its activities the economic policy of the European Union more generally. This also includes European Union climate policy, which clearly affects economy. “Thus, the European Central Bank’s consideration of climate issues has not been a matter of its own volition, but has also been the will of the legislature,” Müller underlined.

Müller argued that the impacts of climate policy and climate change were wide-ranging, extending beyond the environment, affecting the economy and financial systems, which importantly also involved obligations for central banks. Climate change causes extreme weather events that can disrupt economic activity, damage infrastructure, and reduce productivity. “Such changes can affect supply chains, increase price volatility and bring about faster price rises for certain products or services,” Müller admitted.

He referred to the fact that the transition to a carbon-neutral economy would mean heavy investments both for the deployment of new energy sources and for the provision of innovative technology products and services in many sectors of the economy. “All this has a potential impact on different prices and is therefore directly related to the main task of the European Central Bank and other central banks, which is to maintain price stability,” Müller noted.

Müller pointed out that the impact of climate change on monetary policy was not just hypothetical. The European Central Bank has estimated that, for example, the heatwave of 2022 pushed up food prices in the euro area by around 0.7%, with the impact extending into 2023. “That is why we have refined our models, which we use in the macroeconomic analysis on the basis of which we make our monetary policy decisions. In these analyses, we will also try to take into account the risks arising from climate change and the impacts of different decisions relating to climate policy,” Müller said.

“In addition, climate change and climate policy have a direct impact on central bank assets. If central bank assets, such as bonds and other financial instruments, are linked to economic sectors affected by climate change, the central bank’s balance sheet is also directly exposed to climate risks. It is therefore responsible, and it may perhaps even be said, essential, for central banks to integrate climate risks into their risk management processes in order to protect their balance sheets and thus their ability to perform their tasks,” Müller said.

He noted that, once again, the Governing Council of the European Central Bank did not specifically discuss individual issues dealt with by the Basel Committee, which was a forum for discussing issues relating to banking supervision and regulations at global level. The members of the Basel Committee are banking supervisors and central banks from the major countries, but also the European Central Bank, in particular as the body exercising banking supervision.

Müller confirmed that, in general, the European Central Bank supported as uniform as possible an approach to climate risk management. Differences of opinion between supervisors in different countries often focus on how to measure and manage climate risks most effectively, but the general thrust, however, is to support the promotion of practices that best take into account environmental risks in global banking. “Having said that, I think it is also only to be expected that supervisors in different countries will have differing positions on certain issues, and the Basel Committee is the place where, by reconciling these differences of opinion and negotiating on these issues, they will try to agree on common minimum standards that apply globally,” Müller said.

Prime Minister Kaja Kallas replied to the interpellations concerning public funding of abortions of choice  (No. 606), the motor vehicle tax being in conflict with European Union law  (No. 622) and the motor vehicle tax being in conflict with the Constitution and European Union law (No. 623).

The interpellators withdrew from the proceedings the interpellation concerning the plan to change the name of the Defence Resources Agency (No. 576), submitted to Prime Minister Kaja Kallas.

The sitting ended at 6.25 p.m.

Verbatim record of the sitting (in Estonian)

Photos (Author: Erik Peinar, Chancellery of the Riigikogu)

Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu.

(Please note that the recording will be uploaded with a delay.)

Riigikogu Press Service
Gunnar Paal, +372 631 6351, +372 5190 2837
gunnar.paal@riigikogu.ee
Questions: press@riigikogu.ee

Link uudisele: The links between European banking and climate policy were debated in the Riigikogu

Source: Parliament of Estonia