Environmental criticism is mounting against ECB's asset purchases

On the 04/16/21 at 6:36AM


Adrien Paredes-Vanheule

ClientEarth has taken the National Bank of Belgium to court, calling for the invalidation of the European Central Bank’s Corporate Sector Purchase Programme (CSPP).

The European Central Bank is once again in court, indirectly, for one of its asset purchase programmes. After debates on the proportional nature of its public-sector purchase programme (PSPP) in Germany last year, it now the turn of its Corporate Sector Purchase Programme (CSPP) to be taken to task in a Belgian court.

ClientEarth, a British environmental protection NGO, announced on Tuesday that it would sue the  National Bank of Belgium for having failed in its commitments to environmental protection and human rights. At issue is the ECB’s CSPP, which the National Bank of Belgium is in charge of applying locally and which, in ClientEarth’s opinion, finances fossil-fuel and other polluting companies far too much.

ClientEarth believes that this programme is “invalid” because of its cost to the environment and human rights. Echoing the argument made by other NGOs, such as Reclaim Finance, on the topic, ClientEarth maintains that more than half of the ECB’s bond purchases benefit the heaviest polluting companies. Of the six European local central banks implementing ECB's CSPP, the Belgian National Bank appears to be responsible for purchases from companies across the greatest number of eurozone countries. It currently holds 430 of the 1649 bonds held under the programmes, and it has been estimated to hold the third largest portfolio in valueBNB's bond holdings connected with fossil fuels companies include Shell, Eni, EDP (Energias de Portugal) and Schlumberger among others.

In buying heavily carbonated bonds, the National Bank of Belgium provides access to low-cost financing to some of Europe’s most heavily polluting companies and facilitates the expansion of their climate-harming activities,” said Jamie Sawyer, ClientEarth’s lawyer. And, in his opinion, the EU’s central banks are legally required to further environmental protection and respect for human rights.

The Court of Justice of the European Union will have to decide

The Belgian court has already moved the venue to the Court of Justice of the European Union (CJEU) via a prejudicial question. In other words, the CJEU will have to determine whether the ECB’s CSPP is valid or not, in order to determine whether the National Bank of Belgium’s CSPP-linked purchases are legal.

“We maintain that the ECB’s programme failed in its obligation to assess the climate impact of the purchase of these corporate bonds. If the ECB’s programme is invalidated, ClientEarth asks the Belgian court to order a halt to the purchases of CSPP-linked bonds by the National Bank of Belgium.The ECB will have to take suitable measures to remedy this illegality,” ClientEarth said.

ClientEarth also rejects the “myth” of market neutrality put forth by the institution to justify its purchases of corporate bonds of heavily polluting companies and asked the ECB to align its monetary policy with Paris Agreement objectives. Contacted by Asset News, the National Bank of Belgium declined to comment on the case.

This judicialization of CSPP comes as a strategic review of the ECB is expected by autumn and the institution recently established a climate change centre whose mission is to plan actions in this area. Debates are also heating up on a greener ECB. An ECB study released in December 2020 found that green quantitative easing was “an efficient tool for mitigating harmful emissions”. The study also suggested that a green QE would have a limited impact on reducing pollution if it focused solely on low-variation variables, such as the level of carbon dioxide in the atmosphere.

Climate justice

Can ClientEarth alone stop the ECB’s CSPP?  As the European Union is itself a signatory of the Paris Agreement, institutions linked to it, including the ECB, are liable in combating climate change, Fabrice Cassin, a partner attorney at the LPA-CGR firm and a specialist in energy and environmental low, told Asset News.

“In other words, the ECB cannot ignore the Paris Agreement in implementing its investment programmes. It must reflect on the measures it takes to reach the new European goal of reducing greenhouse gas by at least 55% by 2030 in comparison to 1990 levels. Therefore, it is not meant to finance fossil-fuel or other heavily polluting companies, especially as Europe is sponsoring the Green Deal. There is an issue of consistency between the various European institutions.” In the lawyer’s view, if the ECB can claim “market neutrality” as an excuse, the ECB must reconcile this interest with the imperative of combatting climate change.

This case also comes in a  more general, fast-expanding issue of climate justice. Cassin points out that over the past 10 years or so, associations have been attacking governments and institutions in court to force them to take steps to combat climate change. “We are going to court so that governments and institutions demonstrate and stick to their climate commitments. A recent United Nations report found 1500 legal cases linked to climate change in about 40 countries in 2020, up from 800 in 2017. The number has almost doubled in three years,” he said.

Commitments are at the heart of the discussions

France is not exempt, with, among other climate cases, the French government’s having been found guilty of “culpable failures” in combating climate change last February in the so-called Affaire du Siècle (Case of the Century). The first ruling was obtained from the Hague court by the Urgenda foundation against the Dutch government in December 2019. The ruling, founded on the right to life and to lead a normal family life affirmed by the European Court of Human Rights (ECHR), ordered the Dutch government to take additional measures such as closing of coal-fired power plants opened in 2015 and 2016, in order to be consistent with its greenhouse gas reduction goals.

But the NGO doesn’t win every time, Cassin said. Some courts have not found these stipulations of the ECHR to be relevant, such as in Norway recently. “In a Norwegian case regarding the granting of a deep-water hydrocarbon extraction permit, an Oslo appeal court ruled in January 2020 that the permits did not lead to “real and immediate” risk of human losses for all Norway’s inhabitants,” Cassin said.

For Cassin, the most noteworthy thing in these cases is that citizens are managing to obtain rulings against their governments’ climate policy, whereas international treaties, beginning with the Paris Agreement, have been powerless in taking action against governments that fail to meet their commitments. “We cannot wait for the 2030 or 2050 deadlines, and regret that we have not managed to meet our goals,” he said.

The other question that lies behind climate judicial activism is that of the credibility of the government and public institutions’ word, Cassin added. “Judges are only ensuring that the constraining commitments taken to reduce greenhouse gas emissions or to reach carbon neutrality that were translated into local or international laws are respected or not. Now, either we consider these goals are too ambitious to be reached by 2030 or 2050 and we revise expectations downwards, or even drop them, or we take concrete measures and sometimes hard measures to reach them.”

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