ECB’s quantitative easing programme challenged before Belgian Courts for “fuelling the climate crisis”

On 13 April 2021, the NGO ClientEarth announced the filing of a landmark legal action in Belgium against the central bank of Belgium (the National Bank of Belgian (“NBB”))’s implementation of the European Central Bank (“ECB”)’s Corporate Sector Purchase Programme, “to stop “quantitative easing” from European central banks flowing to fossil fuel companies and polluting firms that are exacerbating the climate crisis”.

Corporate Sector Purchase Programme

The Corporate Sector Purchase Programme (“CSPP”) is a corporate bond purchase programme established by the ECB in 2016 to improve financing conditions for Eurozone businesses as a form of quantitative easing. This programme is implemented by the central banks of Belgium, Germany, France, Spain, Italy and Finland.

ClientEarth claims that this programme would be invalid due to its environmental and human rights costs, as research suggests that more than half of the €266 billion worth of assets held under the programme would be issued by companies active in carbon-intensive sectors, in particular fossil fuel companies.

Grounds for the Claim

According to ClientEarth, the ECB’s decision to establish the CSPP in 2016 would be invalid, and the NBB’s implementation of this decision thus illegal, because the ECB would have failed to assess the climate impact of buying corporate assets through this programme, despite its legal obligations to do so.

The NGO argues that the ECB is both empowered and legally required to take proactive action on climate change on the basis that:

• the ECB has a primary mandate to take action to mitigate systemic risks and help prevent them from materialising. Climate change is a systemic risk that threatens both price stability and financial stability;
• the ECB has to take into account the EU’s climate objectives and policies and ensure it acts consistently with them, which necessarily involves reducing the impact of its programmes on climate change and human rights, and supporting the transition to a net zero economy; and
• the ECB needs to mitigate the climate-related financial risks to which its corporate asset portfolios are exposed.

ClientEarth requests the Brussels’ French-Speaking Court of First Instance, before which it lodged its claim, to refer the matter for preliminary ruling to the Court of Justice of the European Union (“CJEU”), competent for the interpretation of EU law and the review of the validity of EU law acts.

If the Brussels French-Speaking Court of First Instance were to rule the CSPP invalid, ClientEarth asks the Court to order the NBB to stop purchasing bonds under the programme. The ECB would then have to take all measures appropriate to remedy the illegality.

The Brussels French-Speaking Court of First Instance usually renders its decisions between 12 to 18 months, but the proceedings would take longer in the case it accepts to refer the matter to the CJEU.

ECB’s Review of its Monetary Policy Strategy Review

In parallel to the filing of their claim before Belgian courts, ClientEarth lawyers wrote on 12 April 2021 to the ECB’s Executive Board and Governing Council, insisting on the ECB’s legal obligations related to climate change and asking them to use the strategy review as an opportunity to reform the CSPP with the view of mitigating climate change, rather than contributing to it.

ClientEarth’s legal action indeed comes as the ECB is conducting a significant review of its monetary policy strategy, which is due by September 2021. In several recent declarations, ECB’s President Christine Lagarde singled out addressing climate change as a key priority of this ongoing review.

According to ClientEarth, the ECB’s approach to the purchasing programme has so far been centred on “market neutrality” but, while this principle is not enshrined in the EU Treaties, it is increasingly recognised as an inappropriate principle to use in regards to the CSPP and has given rise to inherent carbon bias.

ClientEarth’s letter to the ECB includes three recommendations to decarbonise the CSPP and align its monetary policy strategy with the goals of the Paris Agreement:

• the CSPP should immediately exclude companies whose activities are clearly incompatible with achieving the Paris Agreement goals or are associated with high transition risk, such as coal and unconventional oil and gas;
• the ECB should cease and restrict purchases of bonds from carbon intensive companies if they do not adopt by January 2023 a credible Paris-aligned strategy to achieve net zero emissions; and
• the ECB should set a comprehensive strategy on how it will align its monetary policy portfolios and activities with the Paris goals. It should issue a report annually disclosing its progress, in line with the Recommendations of the Task Force for Climate-related Financial Disclosures – a global standard for climate-related reporting.