Dr Roda Verheyen, Rechtsanwälte Günther, Hamburg


In the context of the ongoing European Central Bank’s (ECB’s) strategy review, the demand for a new, Paris-compliant or climate-resilient monetary policy has led to controversial debates in professional circles. Economists and representatives of national central banks, in particular the Bundesbank, expressed serious concerns as to whether the consideration of climate protection criteria was covered by the central bank’s mandate. This legal opinion addresses the question of whether it is legally permitted, or even required, for the ECB to apply climate-related risk criteria in its monetary policy, especially when dealing with corporate bonds, and thus support the objectives of environmental policy of the EU. 

Based on the legal framework of the ECB and the Bundesbank as laid down in the Treaties on the Functioning of the Union (TFEU), as well as in the German Basic Law and the Bundesbank Act (BBankG), the legal opinion analyses the legal implications that could arise if climate-related criteria were to find their way into the monetary policy operations of the European System of Central Banks (ESCB). At the same time, it shows that legal action could be undertaken before national courts if central banks or the  ECB itself continued to fail to include climate criteria in their decisions.

The statutory independence of the ECB is a central element of the debate on the extent to which an obligation to neutrality and thus a contradiction to the support of economic policy objectives can be derived from this independence. However, the legal opinion demonstrates that independence does not grant the ECB unfettered discretion in shaping monetary policy, but that the bank is subject to EU environmental principles in Article 191 TFEU and to the cross-section clause in Article 11 TFEU. The cross-section clause stipulates that EU institutions and thus also the ECB may not disregard the requirements of environmental protection. Article 37 of the EU Charter of Fundamental Rights, which stipulates that “A high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union”, is also relevant.  

The obligation to protect the climate is further underpinned by Art. 7 TFEU, which states that the EU shall ensure coherence between its policies and activities in different areas, taking into account its objectives as a whole, while respecting the principle of conferral of powers that defines the limits of EU’s competences that EU countries have agreed on.

Furthermore, the ECB is subject to judicial review by the European Court of Justice (ECJ), which in turn emphasised in the OLAF judgment in 2003 (concerning the applicability of investigations conducted by the European Anti-Fraud Office – OLAF – to the ECB) that the independence of the ECB does not exempt it from the provisions of Community law. In particular, it had to contribute to the achievement of the objectives of the European Community. Moreover, measures taken by the ECB to maintain price stability can only be validly adopted if they are proportionate. Thus, the neutrality requirement is clearly limited both by treaty law and by the ECJ. 

The principle of democracy and the aspect of democratic control represent a further central aspect of this legal opinion. After all, this raises the question of whether an independent institution like the ECB may take decisions and actions which have repercussions on  climate protection, without taking into account its responsibility towards democratically elected decision-makers. The legal answer to this is clear: the legislature has already determined in various legal acts how it intends to realise and concretely implement the environmental objectives set out in Article 3 TFEU. It is very clear from these legal acts that the ECB must take climate protection into account when making a discretionary decision in the context of its monetary policy, so as not to go against legislative values and to act in line with the decisions of other European institutions. 

Author of the report Dr Roda Verheyen, LLM, environmental, human rights and corporate lawyer

Moreover, the Paris Climate Agreement sets a binding framework under international law, which highlights the area of finance and investment (under Article 2, and as such on the same level as the goal to limit global mean temperature rise to well below 2°C, whilst pursuing efforts to limit temperature rise to 1.5°C), and specifically aims to make financial flows “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. According to the European Commission and the European Parliament, the ECB is directly bound by the Paris Climate Agreement, as it is a signatory to it as an institution of the EU. The Paris Agreement has been adopted by the EU and is thus part of the EU legal system. Its objectives must be taken into account in discretionary decisions of the ECB. The objective is also not limited to specific types of financial flows, but concerns them in general and thus also includes monetary policy operations.

Against the backdrop of the current German Constitutional Court (BVerfG) ruling that stated that the German climate law must be brought in line with the Paris Agreement, the German Bundesbank should also examine, independently of ECB guidelines, what scope for discretion it has in order to give effect to the obligation to protect the climate, as set out in Art 20a of German Basic Law (Art 20a of the Basic Law is a mandate for all bodies and authorities of the state). An objective legal obligation remains an obligation.

To sum up: climate protection is  a human right and a constitutive principle of the European Union and its member states. All this raises the question of whether the ECB or the Bundesbank may be held liable in court for failing to take necessary measures to align their monetary policy framework with political efforts to protect the climate.

Full report.