I. The Global Climate Crisis as a Challenge for the EU and the Necessary Transition to a Low Carbon Economy

Human-induced climate change has become a major global crisis threatening the viability of the planet and its inhabitants. It is estimated that human activities have already caused around 1°C of global heating compared to pre-industrial levels, whilst its catastrophic impact is already visible in many regions in the world.^{Footnote 4} This pressing climate crisis has led governments around the world to the adoption of the Paris Agreement and the 2030 UN Sustainable Development Agenda in 2015, agreeing on a global transition towards a more sustainable path for our planet. The need for urgent action to combat climate change has also been recognized in Europe. In November 2019, the European Parliament declared a global “climate and environmental emergency” and urged the EU to commit to the goal of reaching climate neutrality as soon as possible.^{Footnote 5} A month later, the European Commission presented the “European Green Deal” as its new growth strategy, highlighting the EU’s commitment to strive for carbon neutrality by 2050.^{Footnote 6} Annexed thereto is a roadmap for measures to be taken in the next few years in order to implement the European Green Deal.^{Footnote 7}

At the heart of this initiative is the proposal for a “European Climate Law,” which was entered into force on July 29, 2021, and stipulates the legally binding long-term objective of greenhouse gas neutrality.^{Footnote 8} It includes a 55% net emission target for 2030, incorporating the so-called “2030 Climate Target Plan,” an EU-wide climate neutrality target for 2050, the establishment of a European Scientific Advisory Board on Climate Change, as well as the use of an emission budget for setting a 2040 target. It is essential to note that the European Climate Law codifies the climate neutrality goal, as set out in the European Green Deal. It aims to achieve this by ensuring that all EU policies contribute to the climate-neutrality objective and that all sectors play their part. Considering the magnitude of the global challenge, it is evident that a green transition will not succeed without the efforts of every sector, including the financial institutions.Footnote ⁹

II. The Relevance of Earth System Science and the Planetary Boundary for Climate Change

The urgency to act becomes even more evident, when considering the findings of earth system science and the so-called planetary boundary for climate change. The earth system analysis is a research field, which focuses on the complex dynamics of the entire earth system, and illustrates the complexity of the earth’s underlying processes and systems as well as their mutual interactions.Footnote ¹⁰ In addition, the concept of “planetary boundaries”Footnote ¹¹ was developed by a group of earth system and environmental scientists, who identified nine planetary boundaries in total.Footnote ¹² Crossing one or more of these boundaries may affect the functioning of the earth system as a whole, leading to catastrophic environmental change. According to the scientists, the planetary boundaries, thus, define the safe operating space, within which humanity can live and operate safely, and draws on a safety margin when quantifying critical thresholds.

Within these planetary boundaries, the concept also refers to a climate-change boundary, which denotes how much climate change the planet can safely tolerate. Given its importance in the functioning of the earth system, climate change has been recognized as one of the two “core planetary boundaries.” In their first publication, the group of scientists led by Rockström has suggested a climate-change boundary value, which gives a high probability that 2°C as a maximum temperature rise compared to the pre-industrial level is respected.Footnote ¹³ This means that it is crucial to respect the identified climate-change boundary, 350 ppm, if we are to minimize the risk of crossing critical thresholds, a failure which could lead to highly non-linear, abrupt and irreversible earth system responses. For each boundary there is also a zone of uncertainty, which is due to the uncertainty about the knowledge about when significant change in the process might occur.^{Footnote 14} Raising the CO₂concentration towards the upper end of the range may lead to a higher risk of crossing the threshold.

The concept of planetary boundaries has been shaping the environmental policy debate for several years. The international climate protection targets agreed in the Paris Agreement, which call for limiting human-induced climate change to well below 2°C compared to pre-industrial levels or, if possible, to 1.5°C, represent an ecological limit set within the framework of earth system science.^{Footnote 15} In addition, the scientific findings can also be contextualized in legal terms. The concept of ecological limits and, in particular, the safety margin, formulates a normative component that corresponds to the Union’s objective of environmental protection under Article 191 TFEU. This provision refers to the precautionary principle.^{Footnote 16} This legal principle provides a key normative requirement for dealing with ecological boundaries. The meaning of this and the consequences, which may be derived for the Union will be developed below, when analyzing Article 11 TFEU.

III. Climate Change Affects Financial Systems and Price Stability

Having established the urgency of combatting climate change with a view to the findings of the earth system analysis, we will now focus specifically on the correlation between climate change and central banking. There is growing recognition among the financial community that climate change poses severe threats to central banks and financial systems, which has forced financial regulators to start analyzing the dynamic links between climate change and central banking. Prior to the outcome of the ECB’s new monetary policy strategy, emerging awareness amongst central bankers about climate-related risks could be observed. In his speech in 2015, Carney already elaborated on the implications of climate change for financial stability. Drawing from the concept of the “Tragedy of the Commons,” he identified the “Tragedy of the Horizon.”^{Footnote 17} This is a phenomenon, which describes the tragedy that when climate related risks materialize, it will be too late to prevent them. Lagarde emphasized the impact of climate change on price stability at the latest State of the Union conference stating that, “[It] is pretty obvious, climate change will have—has already—an impact on price stability, whether you look at climate related events, whether you look at particularly exposed areas, prices will be determined as a result of that.” In this regard, speeches from other central bankers followed, discussing, inter alia, the impact of climate change on monetary policy, the types and sources of climate change-related risks for the financial sector and, more general, reflecting about the role of central banks in addressing climate change. ^{Footnote 18}

There is, indeed, clear evidence that climate change affects the economy in its entirety, including financial systems and price stability.^{Footnote 19} The World Economic Forum stressed again in “The Global Risks Report 2021” that risks related to global warming are amongst the most important and urgent the world is currently facing.^{Footnote 20} In fact, the risk assessment for the banking sector for 2019 by the European Banking Supervision referred to climate risks as one of the key risks for the European banking sector.^{Footnote 21} In general, with regard to financial systems, there are different types of risks specifically related to global heating—climate-related risks—which, however, do not constitute wholly new types of risks, but comprise of the existing categories of risks in financial systems, which are credit, market and operational risk.^{Footnote 22} Given the non-linear nature of climate change, these risks become more urgent.

Several transmission channels through which anthropogenic climate change affects central banks, have been identified. The two main sources are physical risks and transition risks.^{Footnote 23} Physical risks, on the one hand, arise from the environment itself and are particularly related to the impact of climate events and gradual heating. These are driven by the fact that global warming increases the severity and frequency of natural disasters and extreme weather events such as droughts, persistent precipitation, sea-level rise, storms and floods.^{Footnote 24} Indeed, in her keynote speech, Lagarde pointed out that the number of natural catastrophes increased from 249 in 1980 to 820 in 2019 and resulted in damages estimated at $210 billion in 2020.^{Footnote 25} Transition risks, on the other hand, relate to costs arising from the need of innovation and policy interventions aiming at climate risk mitigation, such as the transition to a low-carbon economy.^{Footnote 26} Both climate-related physical and transitional risks can directly affect inflation and in consequence, have an impact on price stability. As regards the impact on the Eurosystem in particular, it has been noted that climate-related risks may for instance affect the value and risk profile of assets held on the Eurosystem’s balance sheet.^{Footnote 27} Climate change may affect price stability by resulting in supply and demand-side shocks. In addition, the loss of physical capital, supply chain interruptions and reduced labor supply due to natural catastrophes may lead to a decline in growth and productivity. As regards transition risk, climate policies may for instance affect consumer prices.^{Footnote 28}

Furthermore, concerns have been raised that central banks themselves may aggravate global warming. A so-called “emission bias”^{Footnote 29} has been observed in the context of the ECB’s Corporate Sector Purchase Programme (CSPP). This means that there is evidence that the Eurosystem was mainly purchasing so-called “brown” bonds issued by corporations, whose activities aggravate climate change.^{Footnote 30} Consequently, it could be said that the ECB has itself contributed to the increase of greenhouse gas emissions through its own programs, which in turn jeopardizes its primary objective of maintaining price stability.

As a matter of fact, the academic debate about “green central banking”^{Footnote 31} and, in particular, the role of central banks addressing global heating has expanded rapidly in recent years.^{Footnote 32} Considering the responsibilities and pressures faced by central banks, some scholars raise the fundamental question: “On what basis could we expect central banks to play a role in climate change policy?”^{Footnote 33} On the one hand, it can be assumed that, given their responsibilities and mandate of regulatory oversight over the financial system, central banks are in a powerful position to ensure further greening of finance approaches. Indeed, it is assumed that a “central bank must take climate change into account to the extent that it is part of their core mandate in delivering monetary and financial stability.”^{Footnote 34} On the other hand lies the assertion that environmental sustainability and climate factors, in particular, fall outside the scope of central banks’ traditional core responsibilities.

I. The Meaning and Scope of Article 11 TFEU

Also referred to as the “integration” or “cross-cutting” clause, Article 11 TFEU reads as follows: “Environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development.” At the outset, it should be clarified that Article 11 TFEU does not comprise the competence of the EU. It can rather be understood as a primary law requirement to carry out a strategic environmental impact assessment, which extends not only to individual measures, but also to policies, programs, plans and laws. This requirement obliges all EU institutions, and therefore also the ECB, to integrate environmental considerations into their policies. ^{Footnote 35}

According to the Court of Justice of the European Union (CJEU), the provision demands the integration of environmental protection requirements into the definition as well as the implementation of Union’s policies, emphasizing the objective’s “extension across the range of those policies and activities.”^{Footnote 36} Given the systematic position of Article 11 TFEU, the Treaties make clear that this cross-cutting clause affects all actions of the Union institutions. Considering the provision’s wording, the term “integrating” means that environmental protection “must be regarded as an objective, which also forms part of” any Union policy.^{Footnote 37} Indeed, the provision should be considered as an obligation “to take due account of ecological interests in policy areas outside that of environmental protection stricto sensu.”^{Footnote 38} Environmental protection can, for instance, be identified as a guiding principle within the Union’s competition policy.^{Footnote 39} There is, however, potential for conflict particularly vis-a-vis the Common Agriculture Policy^{Footnote 40} and the Transport Policy^{Footnote 41}. As a result, Article 11 TFEU enables the EU’s institutions to consider environmental protection objectives alongside other objectives within a certain policy area. This subsequently also applies to the ECB’s monetary policy.

The incorporation of environmental protection requirements shall, in particular, promote the principle of sustainable development, as suggested in the wording of Article 3 and the preamble of the TEU. Environmental integration has, in fact, been acquiring increasing importance. There is growing recognition that environmental assets such as ecosystems, environmental media and climate are closely interlinked, and that individual environmental areas and problems are, therefore, strongly connected. Considering the conception and purpose of Article 11 TFEU, the provision can, thus, be regarded as an authoritative instrument for implementing the principle of sustainable development in Union law.^{Footnote 42}

II. Is Article 11 TFEU Legally Binding?

It is not entirely clear whether Article 11 TFEU merely represents a non-binding political program clause or comprises a legally binding rule.^{Footnote 43} So far, the CJEU has not provided a clear guideline. In this sense, Advocate General Jacobs in his opinion in the PreussenElektra case emphasized^{Footnote 44} that the cross-cutting clause is not merely programmatic but is rather legally binding. However, in the legally non-binding Declaration No. 20 to the Final Act of the Maastricht Treaty, the Intergovernmental Conference provided “that the Commission undertakes to take full account of the environmental impact and the principle of sustainable development in its proposals and that the Member States undertake to do so in their implementation.” The Commission has issued instructions to this effect.^{Footnote 45} Here, the question regarding the provision’s legally binding nature was discussed on the occasion of its revision by the Maastricht Treaty. No limitations were prescribed to the discretionary power of the Commission and the Council.^{Footnote 46} In addition, the wording of Article 11 TFEU also prescribes only general conditions for future measures of the Union without specifying the timeframe or form of realization. Further, because no legal consequences in the event of non-observance can be discerned, it may be questioned whether the clause is a mere principle or a legally binding rule.^{Footnote 47}

As counter to the foregoing, majority of the scholarly opinion rightly points out that the use of the word “must” suggests a clear obligation.^{Footnote 48} Therefore, the requirement to “include” goes beyond a mere “obligation to consider” environmental requirements in the weighing process.^{Footnote 49} This view also corresponds to the purpose of the two revisions of the horizontal clause, which were aimed at making it more binding and more influential.^{Footnote 50} This means that Article 11 TFEU contains an “imperative mandate to act”^{Footnote 51}, which affords it more force than a mere political consideration dependent on the goodwill of the Union institutions.^{Footnote 52} Even though the way of implementation is left to the discretion of the Union institutions, the commanding language clearly speaks in favor of a legal imperative to calibrate all Union policies in accordance with the objectives and principles outlined in Article 191 TFEU.^{Footnote 53}

In addition to its significance as being a legal requirement, Article 11 TFEU also serves as a standard of interpretation against other norms of Union law.^{Footnote 54} This function particularly comes into play in the interpretation of indeterminate legal concepts and in the context of discretionary power. The requirement of environment-friendly interpretation of secondary Union law has also been emphasized in the Concordia Bus ^{Footnote 55} case, where the CJEU confirmed that environmental considerations ought to be taken into account in EU public procurement law.

Having analyzed the meaning, scope and nature of Article 11 TFEU, it already becomes clear that the provision can play a major role in greening endeavors with regard to the EU’s policies. This inevitably raises the question what the integration of environmental protection requirements actually means for the Union institutions, and in particular, the ECB. In answer to this, it is necessary to examine the requirements of Article 11 TFEU, also taking into account the findings of earth system science. The provision’s requirements can be divided into a substantive and a procedural dimension.

III. Substantive and Procedural Requirements of Article 11 TFEU

The point of reference for Article 11 TFEU are the requirements of environmental protection. They comprise a substantive core of objectives, which prohibit undercutting.^{Footnote 56} The requirement to protect the environment, pursuant to Article 11 TFEU, is derived from the Union’s objective of environmental protection under Article 191 TFEU. It is supplemented by the fundamental rights obligations of the EU and the Member States to protect human life and health in Article 3 EU Charter of Fundamental Rights. Considering the findings of earth system science, it can be said that these obligations aim at keeping away from planetary boundaries and at preserving the “ecological subsistence level of humanity.”^{Footnote 57}

Coming back to the legal relevance of planetary boundaries more specifically, it is clear that this scientific concept can only indicate that measures to combat climate change are urgently needed. It, however, does not specify which concrete measures the EU is obliged to take. This means that, in order to draw concrete conclusions, the scientific situation needs to be assessed normatively and politically.^{Footnote 58} Essential normative guidelines for dealing with planetary boundaries are derived from the precautionary principle, which is mentioned in Article 191 TFEU, and which is linked to the sustainability principle by means of Article 11 TFEU. The precautionary principle comprises of two dimensions: risk and resource precaution.^{Footnote 59} Both dimensions aim to avoid critical loads and tipping points. If critical loads and tipping points are reached, the “ecological subsistence level of humanity” will be threatened through serious and irreparable damage to environmental assets. An independent principle of non-exhaustion of planetary boundaries can be developed from the legal precautionary principle. Logically, to prevent the threshold from being exceeded, it is essential to keep away from it.^{Footnote 60} In the context of the planetary boundaries, Articles 191, 11 TFEU, thus, give rise to a binding mandate for action on the part of the EU to steer visibly away from these limits.

It remains, however, difficult to determine which concrete measures are to be taken, and which among the many and very different groups of polluters has to make what kind of necessary adjustments, to what extent and within what timeframe. It is primarily up to the legislator to draw conclusions from scientific findings on environmental pollution limits. Nevertheless, the more serious the foreseeable consequences of exceeding planetary boundaries become, the more weight should be attached to the principle of keeping away from planetary boundaries in the political and legislative decision-making. In terms of climate protection, in particular, the more imminent an overstepping of the planetary limits^{Footnote 61} gets, the greater is the weight to be attached to the distance requirement.

It is evident that European Law demands action, if our use of the environment remains unchanged and, thus, exceeds—or, as in the case of climate protection, has already exceeded—the planetary boundaries, and therefore, most likely endangering the stability of the Earth System as well as the ecological foundations of human life.^{Footnote 62} Yet the enforcement of environmental and climate protection concerns in daily political decision-making appears to be weak, even in the case of adopted government strategies. Article 11 TFEU requires, at a procedural level, that the ecological sustainability aimed at with the European Green Deal is also safeguarded by means of adequate procedures.^{Footnote 63}

To summarize, the analysis of Article 11 TFEU confirms that the EU institutions are indeed legally required to take climate considerations into account. In addition, it can be said that the scientific perspective of the earth system analysis coupled with Articles 191, 11 TFEU give rise to a binding mandate for action to steer away from the climate change boundary. In addition to its legal analysis, it is interesting to shortly consider whether Article 11 TFEU has already played a role in practical terms. For instance, the “EU Taxonomy” for establishing a common classification system for sustainable economic activities can be regarded as an example for implementing Article 11 TFEU into practice. The Taxonomy Regulation^{Footnote 64} is one of the key actions in the context of the European Commission’s “action plan on sustainable finance” and stresses the importance of linking financial markets and sustainability. Considering that financial systems play a crucial role to support the transition towards sustainability, it seems paramount to ensure that financial flows are redirected to sustainable investments. This practical example for implementing the integration clause may also hint to the relevance for greening the monetary policy of the ECB, who alongside other EU institutions, is equally bound by Article 11 TFEU. Based on these findings, the next sections specifically focus on the application of Article 11 TFEU to the ECB’s monetary policy, analyzing the provision’s potential effect on the ECB’s primary and secondary objectives, as well as on the design and implementation of its monetary policy. Specific greening efforts, resulting from the provision’s requirements, will be developed later in detail.

I. Price Stability as a Major Limitation to the Application of Article 11 TFEU

At first, it is paramount to take a look at the fundamental meaning of the ECB’s primary goal of maintaining price stability, which is not only stressed in the TFEU, but also by legal scholarship and the German Federal Constitutional Court (FCC). Concrete conclusions regarding the significance of price stability will also be discussed later when considering the practical implications of Article 11 TFEU, such as the adoption of a “Green Assets Purchase Programme.”

According to Article 127(1) TFEU, the ECB’s core responsibility in the context of its monetary policy is to ensure “price stability” in the euro area: “The primary objective of the European System of Central Banks (hereinafter referred to as ESCB) shall be to maintain price stability.” This means that the ECB places this primary objective in the forefront of its monetary policy operations.^{Footnote 67} Apart from the provision about the ECB’s core mandate, the Treaty text contains multiple references to the objective of price stability.^{Footnote 68} It is for instance referred to in Articles 119(2), 219(1) TFEU, stressing again that this primary objective has to be pursued in the context of monetary policy. Safeguarding of this objective thereby constitutes a legally binding obligation for the ECB.

In addition to the ECB’s primary goal, Articles 119(2), 127(1) TFEU and Article 2 of ESCB/ECB Statute, establish the ECB’s secondary objective. Thus, without prejudice to the primary objective, the Eurosystem shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union. As it had been underlined by the ECB itself, the reference to its supportive role regarding economic policies as a secondary objective demonstrates the “broad need for mutual co-operation and dialogue among policy-makers.”^{Footnote 69} It follows from the strict limitation of its mandate that the support of the EU’s economy may only be realized through the implementation of monetary policy instruments.^{Footnote 70}

In terms of the hierarchy among the ECB’s objectives, Article 119(2) TFEU clearly confers the primary objective of price stability a distinctive position. This suggests that, in the scope of monetary policy, the objective of price stability takes precedence over other objectives, also climate-related ones. This distinctive role of price stability finds support in legal literature as well as in the jurisprudence of the FCC.

German legal scholarship suggests to describe the ECB’s objective of maintaining price stability as the Grundnorm of the then new Community.^{Footnote 71} In terms of the Community objectives, it is said that the ECB is “indirectly” bound by them as secondary objectives. In case of conflict between the objectives, they stress that the ECB was “legally obliged to give precedence to price stability.”^{Footnote 72} Among German legal scholars, it is stated that the goal of price stability is not abwägungsfähig, which means that the primary objective cannot be part of a balancing exercise with opposing interests.^{Footnote 73} It follows that, in case of conflict, the interpretation that serves the objective of price stability best, takes precedence.^{Footnote 74} Some scholars even go as far as characterizing the goal of price stability as a “key concept” within the scope of the EMU.^{Footnote 75}

The distinctive role of the price stability objective was also underlined in the FCC’s Maastricht-decision^{Footnote 76}, where the FCC declared the “community of stability” (Stabilitätsgemeinschaft) as the fundamental concept of the monetary union.^{Footnote 77} In terms of the European integration process, the Court has referred to the intention of the then German Federal Parliament (Bundestag) to allow the monetary union only to start upon the condition of the fulfillment of strict stability criteria (strikte Stabilitätskriterien).^{Footnote 78} The Court has also stressed that in case the monetary union was not able to further develop the stability, which existed upon entry into the third stage, in a way that is compatible with the agreed mandate of stability (Stabilisierungsauftrag), it would not act in compliance with the concept upon which the Maastricht Treaty is founded.^{Footnote 79}

lII. Price Stability and Climate Protection: Applying Article 11 to the ECB’s Primary Objective?

The incorporation of climate protection goals pursuant to Article 11 TFEU needs to be seen and contextualized precisely within the ECB’s primary objective. In view of its fundamental meaning in the context of monetary policy, price stability cannot be balanced with opposing interests, not even with those, which are climate-related. Thus arises the question, whether and how climate protection may be considered within the ECB’s mandate? This is a complicated question, which needs further differentiation.

To illustrate the point, one can think of “price stability,” on the one hand, and “climate protection,” on the other, as two circles that partially overlap (As shown in Figure 1). The following picture emerges: On the one hand, climate protection is in tension with the primary goal of price stability. On the other hand, price stability and climate protection partially overlap.

III. Applying Article 11 TFEU to the ECB’s Secondary Objective

Article 11 TFEU may have a direct effect on the ECB’s secondary objective, according to which, the Union’s general economic policies shall be supported with a view to contributing to the achievement of the objectives of the Union. “Economic policies” can be broadly defined as policies that affect society and the environment, such as, inter alia, sustainable growth, maximum employment or climate protection. The objectives of the Union are articulated in Article 3 of the Treaty on European Union (TEU).^{Footnote 87} The provision refers to several goals, among which environmental protection—"a high level of protection and improvement of the quality of the environment”—is one of the Union’s objectives. In the context of the internal market, Article 3(3) TEU refers to “economic growth,” “price stability,” “a highly competitive social market economy” as parameters for the Union in order to work for the sustainable development of Europe.^{Footnote 88} The diversity in the Union’s goals suggests that the ECB may support economic policies covering a wide range of objectives which have a general economic dimension. References to “environmental protection and improvement” and “sustainability” in Article 3(3) TEU can be seen as clear indications of the significance of green goals and climate-related efforts within the Union. As such, the goals do not appear in any particular order of priority, which suggests that they are all at the same level.^{Footnote 89} This means that environmental protection does not take priority over other goals laid down in Article 3 TEU. Applying Article 11 TFEU does not change the level of priority among these goals, which therefore remains unchanged even after the integration of climate protection within the ECB’s secondary objective.

Nevertheless, in choosing which of the “general economic policies” shall first be supported, the ECB can exercise its discretion. The CJEU has repeatedly confirmed that the ECB must be allowed to have “a broad discretion” when designing and implementing its monetary policy.^{Footnote 90} At the same time, however, the proportionality principle is a major limitation to its broad discretion.^{Footnote 91} Within this discretion, Article 11 TFEU may offer a valid legitimization for the ECB to prioritize the support for Union’s environmental and climate policies thereby promoting climate protection. This argument is reinforced by the fact that currently the EU’s general economic policies are striving for carbon neutrality and are in conformity with the underlying commitment to combat climate change. The CJEU has itself acknowledged in its rulings in the Weiss and Gauweiler cases that monetary policy measures may have indirect economic effects.^{Footnote 92} Taking into account Article 11 TFEU, this means that, when making “choices of a technical nature” and undertaking “forecasts and complex assessments,” the ECB also has to consider climate-related factors. In carrying out a careful and accurate analysis, the ECB shall, thus, be guided by climate-related considerations.^{Footnote 93} Within this margin of potential economic effects, Article 11 TFEU allows for and legitimizes the integration of climate considerations.

IV. Interim Conclusion on the Effect of Article 11 TFEU on the ECB’s Primary and Secondary Objectives

Following from the above, some concluding remarks shall already be summarized at this point. According to Article 11 TFEU combatting climate change is a major priority of the EU, yet the primary objective of price stability must not be compromised for the pursuit of other goals. With regard to this tension defined by two legally binding objectives a differentiated approach has to be developed.

It follows that the primary goal of price stability cannot be balanced with opposing interests, not even with interests that might be climate-related. This means that the environmental integration principle of Article 11 TFEU does not allow for an easing of price stability defining the core principle of the EMU.

However, considering the evidence regarding the threat that climate change poses for financial systems and the adverse effects that global warming could have on the ECB’s primary goal of price stability, in some cases, Article 11 TFEU may even allow for the integration of climate-change factors in the pursuit of the primary goal. In this context, the environmental integration principle implies a guiding function regarding the ECB’s policy measures for ensuring price stability. Therefore, if the ECB implements policy measures in the pursuit of its primary goal to maintain price stability, it shall take climate-related aspects into consideration to the extent that climate change poses a threat to price stability.

Moreover, Article 11 TFEU can directly affect the ECB’s secondary goal, and thus obliges the ECB to take into account, or integrate, climate change factors when supporting the general economic policies in the Union. Against this background, it can be said: As long as the primary goal of price stability is not affected, Article 11 TFEU in connection with Article 119 TFEU and the ESCB/ECB Statute grants and demands a focus of the ECB’s monetary policy on climate policies for the realization of the EU’s sustainability strategy as expressed by the European Green Deal.

I. Integrating Climate Factors into the Design and Implementation of the ECB’s Monetary Policy

As previously confirmed, Article 11 TFEU requires the ECB to consider climate objectives, when designing and implementing its monetary policy. The Eurosystem employs a set of monetary policy tools, which can be subject to a greening. The relevant legal framework for the ECB’s monetary functions and operations is provided in Article 18 et. seq. ESCB/ECB Statute. Article 18 ESCB/ECB Statute refers to “open market and credit operations,” which are the Eurosystem’s primary tools of monetary policy, and thus, constitute an important reference point to which Article 11 TFEU may apply.^{Footnote 97} The most obvious practical implication of applying Article 11 TFEU regards the integration of climate protection considerations into the ECB’s decision-making process. A climate impact assessment in view of monetary policy decisions could be introduced. This means that, when taking monetary policy decisions, the ECB Governing Council assesses the climate impact of certain monetary policy measures.

Several suggestions have already been made about how central banks could address climate change by using their set of available instruments.^{Footnote 98} Some practical developments of greening the banking sector can also be observed. In 2017, a group of central banks and supervisors formed the “Network for Central Banks and Supervisors for Greening the Financial System (NGFS).”^{Footnote 99} In Europe, the European Banking Authority (EBA) published an “Action Plan on sustainable finance” and a discussion paper providing proposals on how environmental, social and governance risks could be integrated into the regulatory and supervisory framework.^{Footnote 100} Most recently, climate change has played a key role in the ECB’s new monetary policy strategy.^{Footnote 101} Therein, the ECB announced its commitment to consider the impact of climate change, the carbon transition, as well as incorporation of climate related aspects into its monetary policy framework.^{Footnote 102} In addition, the Governing Council has decided on an ambitious climate-related action plan with a clear roadmap.^{Footnote 103}

II. Considering Climate Change Risks Within the ECB’s Monetary Policy Strategy

Climate factors should be integrated into the economic analysis within the ECB’s monetary policy strategy, which is the ECB’s general approach to guide the single monetary policy of the Eurosystem. The ECB Governing Council adopted a stability-oriented monetary policy strategy.^{Footnote 104} The strategy consists of three main elements, the first one of which is the quantitative definition of price stability^{Footnote 105} and the “two pillars,” which are used to achieve this primary objective. The two pillars in the framework refer to analytical perspectives aiming at assessing risks to price stability. They comprise the economic and monetary analysis which together constitute the basis for the Governing Council’s monetary policy decisions.^{Footnote 106} In view of climate change risks for price stability, it appears essential that macro implications of climate change and public climate change policies are considered in the context of the core economic analysis. Indeed, the ECB Banking Supervision has been encouraging institutions under its supervision to integrate climate-related and environmental risks into their existing risk management framework as well as decision-making processes.^{Footnote 107} Specifically, institutions are expected, inter alia, to develop stress tests that incorporate climate-related and environmental risks.^{Footnote 108}

Another option is, for instance, the implementation of an inter-generational perspective.^{Footnote 109} The two analytical perspectives within the monetary policy strategy assess determinants of price developments in different time horizons. The “economic analysis” focuses on a short to medium-term. The “monetary analysis” considers a medium to longer-term time-frame.^{Footnote 110} However, it follows from the “Tragedy of the Horizons” that there is a discrepancy when it comes to the temporal dimension of monetary policy and climate change. While it is true that the impact and effect of climate change risks will begin to materialize in the long-term, financial systems consider risks mainly in the short run. Even though the medium-term orientation may already suggest a forward-looking approach, it seems to be essential to broaden the time horizon even further.

III. Greening the ECB’s Existing Bond-buying Programs

There have been discussions in academic literature about considering climate-related factors within the ECB’s bond-buying programs^{Footnote 111}, for example, the asset purchase programme (APP), which constitutes non-standard policy measures.^{Footnote 112} Overall, the decisions to make the purchase of bonds under the existing programs were sought in the pursuit of price stability. There is also evidence that the ECB has already purchased green bonds^{Footnote 113} under the CSPP and the PSPP. The published amount, however, still remains small.^{Footnote 114} So far, the ECB’s bonds purchases focused on assets from CO₂ emitters, which further aggravates climate change and, thus, may pose an indirect risk to the program’s purpose itself. There are several possibilities how climate aspects can be incorporated into the APP and that can be legitimized by Article 11 TFEU: The ECB could simply focus on purchasing a higher volume of green assets, limit the maturities of carbon-intensive bonds, reduce their amount or exclude the purchase of assets issued by carbon intensive sectors.^{Footnote 115} In the following section, we will examine the possibility of integrating climate factors into the eligibility criteria and the rules about credit rating. We will then show how this approach can be used to green the “CSPP.”^{Footnote 116}

IV. Adoption and Implementation of a New “Green Assets Purchase Programme”

Besides the integration of climate factors into the existing APP, another greening option to be discussed, is the adoption of a new “Green Assets Purchase Programme” (“GAPP”). Indeed, following its independent status and its broad discretion, the ECB could prepare a bond-buying program, which specifically focuses on the purchase of green bonds. Such a program may, however, raise some issues, which need to be addressed. At first sight, it is unclear whether such a program may constitute a monetary policy measure. In fact, it is even argued, among German legal scholars, that the support of sustainable sectors through the purchase of green assets may be part of economic policy.^{Footnote 133} Pursuant to Article 119(1) TFEU, economic policy shall, however, be based on the close coordination of the economic policies of the Member States, and is, therefore, not a centralized Union policy. Whereas monetary policy falls within the exclusive competence of the Union.^{Footnote 134} Against this background and following the principle of conferral of powers, laid down in Article 5(2) TEU, it is clear that the ECB can only adopt and implement measures, which are in the area of monetary policy.^{Footnote 135} Meanwhile, measures that are attributed to the sphere of economic policy cannot be validly adopted. Against this background, we will first identify the criteria as developed by the CJEU with regard to the delimitation of monetary policy and economic policy, and apply these criteria to the GAPP. We will then consider the proportionality test and, finally, analyze Article 123(1) TFEU as a potential limitation to the GAPP.

V. Reporting and Disclosure of Climate Impact

Overall, in terms of monetary policy decisions, the CJEU stressed that the ECB needs to provide “an adequate statement of the reasons for its decisions.”^{Footnote 152} In light of the judgment and following the procedural requirement of Article 11 TFEU, it can be said that the ECB needs to report and disclose the climate impact of its monetary policy measures. This can be realized for instance by greening the ECB’s existing general reporting commitments. Indeed, the ECB is obliged to draw up and publish quarterly reports on the Eurosystem’s activities in Article 15 ESCB/ECB Statute, as well as to provide an annual report on the Eurosystem’s activities and on the monetary policy, which is addressed to the European Parliament, the Council, the European Commission and the European Council. Details about climate considerations could be published within these quarterly and annual reports. Such climate-related references may include a statement about a measure’s contribution to climate protection goals, the climate impact of a specific measure or adequate reasons for not considering climate-related factors. In terms of its bond-buying programs in particular, the ECB may continuously disclose the volume of green bonds purchased under its programs.

VI. Sustainability Officers and Climate Protection Unit

Moreover, to further ensure that climate considerations are, in fact, integrated into the ECB’s monetary policy, it might be necessary to reflect on additional safeguards to enforce climate protection concerns in the daily decision-making. Two options, which could be considered in this regard, are the appointment of sustainability officers^{Footnote 153} and the introduction of a Climate Protection Unit. Sustainability officers could be entrusted with the task of reviewing the implementation of climate concerns against the yardstick of the European Climate Change Act and the 8th EAP. Similarly, as an independent institution, the Climate Protection Unit could have the responsibility to monitor the climate protection strategy in the ECB’s decision-making process, as well as all the ECB’s measures with regard to the substantial requirement of Article 11 TFEU.^{Footnote 154} It should not only be able to review concrete upcoming monetary policy decisions for compatibility, but also, if necessary, to express concerns.^{Footnote 155} In view of the ECB’s bond-buying programs, an essential task would encompass the definition of “green bonds” to avoid potential “greenwashing,” and the monitoring of their purchase.

VII. Justiciability of Article 11 TFEU and Judicial Control

Lastly, the disclosure of how climate protection issues have been considered within the ECB’s monetary policy might also become relevant in terms of judicial control. So far, the judicial significance of Article 11 TFEU is limited^{Footnote 156} and has not yet been conclusively clarified.^{Footnote 157} Nevertheless, taking into account the context of infringement proceedings (Article 258 TFEU), it is clear that the CJEU is jointly responsible for ensuring that the obligations under the Treaties, and therefore also the requirements of Article 11 TFEU, are observed in the practical implementation of Union policies by the Member States. This indicates that the implementation of the integration clause can, indeed, be subject to judicial control. The CJEU has, in fact, considered the environmental integration clause within its jurisprudence in the context of the Union’s various policies, such as the EU’s transport^{Footnote 158} and waste policy.^{Footnote 159} The ruling on the German Electricity Feed Act even indicates a granting of a privilege to environmental protection, in the justification of measures restricting fundamental freedoms.^{Footnote 160} It becomes clear from these cases that the court acknowledges the consideration of environmental and climate concerns, on the basis of the integration clause. It also confirmed that these concerns shall not be placed above other interests.^{Footnote 161} Despite these cases, there is, however, no clear guidance that could be derived from the CJEU’s rulings on how environmental requirements shall be precisely integrated in order to satisfy the obligations under Article 11 TFEU.

Taking into account legal scholarship in this regard, the justiciability of Article 11 TFEU has been mostly correctly affirmed. Yet, it is noted that due to legislative leeway, the scope of judicial review is limited. Therefore, one can assume that in the area of monetary policy where the ECB is granted broad discretion, the standard of compliance may also be rather lenient.^{Footnote 162} The decisive connecting factor, in this respect, is seen in the obligation to state reasons, following Article 296 TFEU.^{Footnote 163} Furthermore, as AG Geelhoed acknowledges in his opinion, the integration clause may “serve as the standard for reviewing the validity of Community legislation” where “ecological interests manifestly have not been taken into account or where they have been completely disregarded .”^{Footnote 164} Accordingly, one can argue that in case the ECB fails to take relevant climate considerations into account and refrains from providing any reasons, it might be held accountable for disregarding the provision’s obligation. This may ultimately give rise to a judicial control regarding the validity of monetary policy measures, on the basis of Article 11 TFEU.

Figure 1: Price stability and climate protection, graphic by the authors.