NGO ClientEarth withdraws lawsuit against ECB’s quantitative easing programme

As we reported in our previous posts (here and here), ClientEarth filed in April 2021 legal proceedings in Belgium against the central bank of Belgium (the National Bank of Belgium (“NBB”))’s implementation of the European Central Bank’s (“ECB”) Corporate Sector Purchase Programme (“CSPP”), “to stop “quantitative easing” from European central banks flowing to fossil fuel companies and polluting firms that are exacerbating the climate crisis”.

After the dismissal of its claims at first instance in December 2021, the NGO appealed the decision with the Brussels Court of Appeal in January 2022.

In November 2022, ClientEarth eventually announced the withdrawing of its claim, considering that the ECB’s reforms announced in September 2022 have remedied the alleged violations it had raised in court. 

Background of the case

As further explained in our previous posts, the 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 and is implemented by some European central banks, including the NBB.

The NGO claimed in April 2021 that 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.

ClientEarth initially requested the Brussels’ French-Speaking Court of First Instance to refer the matter for preliminary ruling to the Court of Justice of the European Union, competent for the interpretation of EU law and the review of the validity of EU law acts. If the CSPP were to be ruled invalid, ClientEarth requested the Court to order the NBB to cease purchasing assets under the programme.

The Brussels Court of First Instance dismissed ClientEarth’s claims in December 2021 for being unfounded on the merits, because the NGO failed to establish that the asset purchases made by the NBB, insofar as they are based on an allegedly invalid decision of the ECB, would constitute a clear violation of directly applicable provisions of Belgian or EU law relating to the protection of the environment.

On 31 January 2022, the NGO reported that it appealed the first instance decision.

In November 2022, ClientEarth issued a press release to announce that it withdraws its lawsuit, after the ECB accepted its legal obligations to consider the climate in quantitative easing reforms.

Reasons for withdrawal

In its press release, ClientEarth considered that the ECB would finally “accepts that it must take the environment into account when setting and implementing policy, and must support the EU’s climate neutrality objectives”.

The NGO further explained that the ECB’s new reforms entail that the CSPP will be “titled” away from issuers with poor performance in favour of those with better ones. Companies will be scored based on their past emissions, their targets to reduce emissions, and the quality of their climate disclosures. As of 1 October 2022, companies’ climate score will be taken into account in all purchases of corporate bonds, including under the CSPP.

Moreover, the ECB will review the climate scoring methodology after one year, and regularly review and adapt the measures as a whole to respond to future improvements in climate-related data, risk modelling and regulation.

Further recommendations to the ECB

Despite the withdrawal of its claim, the NGO indicated that it remained concerned “that fossil fuel companies and other polluting firms could continue to receive support from central banks despite the reforms” and that it will be “watching [the ECB’s] next steps closely to ensure this is implemented robustly”.

ClientEarth thus made further recommendations to the ECB, including:

• completely excluding the most climate-harmful companies that are involved in activities incompatible with the goal of the Paris Agreement to limit warming to 1.5°C, such as coal, unconventional oil and gas, and fossil fuel expansion activities;
• making it a requirement for companies to have a credible Paris-aligned strategy including targets and performance that are aligned with at least a 55% reduction in emissions by 2030 compared to 1990 levels;
• making climate-related disclosures a mandatory requirement for companies to remain eligible for the programme; and
• increasing transparency around the programme, including by publishing companies’ climate scores.