The European Central Bank and Its Role in a Sustainable Finance System

In this text, all contributions are summarized and the focus of the volume is explained. It highlights the importance of a new cultural setting for ECB sustainability strategies. From a system in which the financial sector incorporates sustainability according to its own logic, as does the real sector, the political sector, the regulatory sector, and the civil society, we need to start working on a system of mutually consistent logics to move from “(ECB) Climate Finance” to a “Climate Finance Society” and from “Sustainable Finance” to a “Sustainable Finance Society.” On this basis, one could then start working on the even more ambitious project of putting culture center stage.

Looking back at the history and development of the research group, Prof. Hoffmann explains what progress has been made in implementing sustainability awareness in the financial industry as well as the political structures. The Frankfurt-Hohenheim Guidelines (FHL) played an important part in changing the way of thinking about investment, but it must be reconsidered and updated in the light of the current crises.

Fast and orderly transitions to carbon-neutral economies are possible and necessary. They are also cheaper for everyone, including banks and industry. To understand the role of the ECB in creating a sustainable financial system, we have to look at the financial activities of the ECB itself, monetary policy, communication and interaction with banks, and administrative actions on different levels. Fortunately, there are European frameworks and institutions on which the ECB activities and initiatives can be based.

What should be the role of the ECB in tackling the socio-ecological challenges related to planetary boundaries, such as climate change and loss of biodiversity? A clear answer to this question is still lacking, in spite of the strategy review of 2021. Regretfully, this review has not received the scrutiny it deserves, as the pandemic and the war in Ukraine have taken center stage. Taking these recent developments into account, we provide a critique of the new strategy. We argue that it lacks transformativity, as it subsumes climate change under the policy objective of price stability, assumes that transformations can be mastered within the structures of the past, and refrains from questioning the current institutional set-up. In its main part, the paper discusses the historical relevance of what we believe is the main reason for these deficits: The fear that taking up the real issues (such as independence and accountability) would make the ECB a political football in times of rising inflation. Taking these fears seriously, we show that the institutionalization of central banking has always reflected the transformative dynamics of their time. Consequently, if planetary boundaries represent a transformative challenge, they will radically change the ECB, too. Moreover, we provide evidence that central banks’ historical transformations have always reflected their peculiar position as mediators between the financial and the political realm. We argue that, at the current juncture, transforming central banking implies moving away from finance and toward politics. This involves risks. However, we argue that the historical experience offers few reasons to fear a closer integration of central banking into the public sphere, as long as the latter is dominated by democratic politics. Consequently, if one comes to the conclusion that the ECB’s current corset is too narrow, it can and should be augmented. While we do not offer a blueprint for such augmentation, we conclude our analysis by sketching elements of a sustainable strategy for a transformative ECB.

The following article presents the view of a practicing financial service provider. The author is the founder of Vision for Finance GmbH, a strategy consulting company whose core mission is to accompany and advise wealthy private individuals, companies, church institutions, and foundations.

The European Union petition 0429/2017 wants to make the European Central Bank apply the EU Charter of Fundamental Rights in their whole core business consequently. The petition has been brought forward by Harald J. Bolsinger from Germany. In this second article, he describes backgrounds and developments around the petition until the beginning of 2023. The petition, submitted on May 8, 2017, addressed the investment policy of the ECB. Audits of violations of EU Fundamental Rights, it claimed, should be specifically included into the eligibility for EU-owned assets. As Bolsinger explains, the ECB is still involved in violations of the Charter of Fundamental Rights of the European Union through possession and trading of ethically very questionable assets.

What impact does Modern Money Theory (MMT) have on the different dynamics toward a new (European) strategy of sustainability? The paper discusses the impact on the public, policy makers, central bankers, academics (both economists and noneconomists), and students of economics. Being an empirical monetary theory, MMT cannot be “applied“, but builds on existing institutions. All recommendations are easi to implement. That makes the MMT, Ehnts argues, a powerful instrument to address the problems of our day.

The text describes the relation between the new EU taxonomy and the sustainability activities of the European Central Bank (ECB). These relations are important in order to adequately understand and describe the challenges for a future-proof ECB policy. It gives a short summary of the taxonomy and outlines the essential fields of mutual interaction.