The ECB should embrace local weather change within the coverage strategy: Villeroy

© Reuters. G7 finance ministers and central bank governors meet in Chantilly

PARIS (Reuters) – The European Central Bank needs to address climate change in its monetary policy approach, ECB policy maker Francois Villeroy de Galhau said on Friday.

He no longer asked the ECB to postpone its bond purchases in favor of green assets.

In an online session of the Ambrosetti forum, Villeroy said that tackling climate change is not a "mission creep" for the central bank.

"We have to deal with climate change, precisely in the name of our price stability mandate," said Villeroy, who is also head of the French central bank.

"Climate change obviously has strong long-term effects on price levels (starting with energy) and the economic outlook. However, we are already seeing short-term effects: think of the forest fires or the structural changes in the European automotive industry," he said.

ECB President Christine Lagarde and Board Member Isabel Schnabel have argued that markets are not adequately assessing climate risk, saying that the ECB should review its commitment to market neutrality, where it does not favor certain assets over others.

Bundesbank chief Jens Weidmann warned this week against giving up market neutrality and said: "It is not up to us to correct market distortions and political measures or omissions."

Villeroy stepped on the line between other policy makers, saying the ECB needs to incorporate climate change into its economic models and projections.

At the operational level, the ECB must assess the climate-relevant risks within the framework in which it accepts collateral, he added.

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