Extending QE to fund green policies is hard for Central banks

The era of monetary dominance is now passing. Former senior adviser to Bank of England Governor Mark Carney said that this is making it hard for central banks to extend their nearly decade-long unlimited easy money provisions to fund green policies. Huw Van Steenis told that though policymakers are still debating over how much of that stimulus should be focused on supply-side measures versus demand-side, the COVID-19 has re-established the efficacy of fiscal policy. He added that he suspects that there is far more to do on the supply side. But again, he is encouraged by how many companies have pivoted over the last 18 months.

Promoting sustainable investments should lie with governments and not central banks. Central banks around the world are figuring out ways to incorporate climate change and extend quantitative easing (QE) to fund green policies. Steenis, the current chair sustainable finance at Swiss bank UBS, said that he believed central banks still had a legitimate role to play in maintaining financial stability and market integrity. And added that transparency in the data and climate stress tests may prove to be the most catalytic tools.

The European Central Bank (ECB) is considering tilting its purchases towards companies that pollute less or are cutting their emissions. But Steenis, the senior adviser of UBS, thinks it is difficult to get that tilt. He said that the industries need finance, and shouldn’t be penalized for not tilting. Helping them finance the transition is the key. According to Steenis, the Central banks will likely use green tilt indices and top up with green bond purchases to signal the direction.