ECB needs to rethink market neutrality in green asset buys: Knot

Credit: REUTERS/KAI PFAFFENBACH

FRANKFURT, Feb 11 (Reuters) - The European Central Bank should rethink its practice of buying corporate bonds based on a principle of market neutrality, as the price of polluting assets is distorted, ECB policymaker Klaas Knot said on Thursday.

The ECB has bought around 300 billion euros of corporate debt in recent years as part of its stimulus schemes, but has faced a barrage of criticism that its favours polluting companies because these are overrepresented in the market and climate risk is not fully priced in.

The ECB is already debating whether market neutrality remains appropriate and Knot's comments add to scepticism already expressed by ECB President Christine Lagarde and board member Isabel Schnabel.

"What does this neutrality mean if there is a carbon bias in European capital markets because the relative price of carbon emissions is distorted?" Knot, the Dutch central bank chief said.

"Central banks could explore how, within the boundaries of their mandates, they can redesign their monetary policy instruments to prevent such biases from occurring, and instead contribute to unlocking more green investments," he added.

The ECB expects to wrap up an overarching policy review around mid-year and a new approach to tackling climate change will be a key element of its conclusions.

Knot also argued that financial firms that fund polluters need to have a better understanding of the climate risk they face, and this requires more detailed and consistent disclosures.

Such reporting should be global and made part of accounting standards, so information is available to all market players.

More appropriate valuations also require an increase in the effective price of greenhouse gas emissions, Knot added.

(Reporting by Balazs Koranyi; Editing by Alex Richardson)

((Balazs.Koranyi@thomsonreuters.com; +49 30 220 133 623; Reuters Messaging: balazs.koranyi.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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