These climate cases will help other courts to become more knowledgeable about how these claims work and the principles at stake
Programme Officer, IBA Environment, Health and Safety Law Committee
But, ClientEarth argues, on the basis of various studies, the Programme demonstrates a structural bias towards fossil fuel companies and what are termed ‘carbon intensive bonds’. One of the studies cited – Policy brief: The climate impact of quantitative easing – was carried out by the LSE’s Grantham Research Institute and found that the largest share of purchases for the ECB are in utilities, the most carbon intensive sector by emissions.
The Institute’s report states that ‘this partially reflects the make-up of the European and UK corporate bond markets, and especially the eligibility criteria of the purchase programmes.’
ClientEarth’s legal case consists of numerous threads. One relates to the ECB’s mandate, which is to maintain price stability. This in itself requires the ECB to take climate change into account, because climate change threatens price stability, the organisation argues.
‘The ECB also has a mandate that requires it to support the general economic policies of the EU and to contribute to the achievement of the EU’s objectives. Those objectives include working for the sustainable development of Europe based on a high level of protection and improvement of the quality of the environment,’ says Sawyer.
In their case, ClientEarth also refer to the ECB’s obligations, both under the EU treaties and in respect of human rights, with the latter requiring the ECB ‘to consider the risks to human rights arising from the climate impacts of the Programme.’
Though the case has been filed in Belgium, ClientEarth is asking for the matter to be referred to the Court of Justice of the European Union, the EU’s highest court, to decide whether or not the ECB’s Programme is valid or breaches these Treaty obligations. This would determine the legality of the Belgian National Bank’s actions carried out under the Programme.
Both the Belgian National Bank and the ECB declined to provide comment to Global Insight due to the pending litigation.
There has been intense policy debate around the ECB’s mandate. For instance, Frank Elderson, a member of the Executive Board of the ECB, spoke as part of an ECB podcast, published in May, about how he sees the organisation’s mandate.
Speaking only in a personal capacity, Elderson outlined his view with a hypothetical example. ‘If we are looking at two possible measures to get to price stability, the primary objective, and both were just as effective in reaching that primary goal, but we could differentiate the two because one would support economic policies in the EU, and climate is a prominent one of those, and the other would not. We don’t throw the dice to choose, we look at the secondary objective […] and we must take the greener option,’ he explained.
The ClientEarth case against the Belgian National Bank feeds into a wider debate over the interplay between climate risk and financial services. Private financial institutions are setting their own polices on how to consider climate risks in their financing and investment decisions and are keen to put forward their green credentials, for instance with the growth of funds that take into account environmental, social and governance (ESG) factors.
Sawyer argues it would send a powerful message to them if central banks take a stand on this. ‘Central banks have a real responsibility to take a lead here and support the global effort to transition to a low-carbon future,’ he says. ‘They are in a position to steer the financial sector towards aligning with the goals of the Paris Agreement. And in their capacity as regulators, central banks should use regulation to encourage financial institutions to change their behaviour, such as requiring them to hold more capital against fossil fuel exposures.’
Or as Leopoldo Burguete-Stanek, Programme Officer on the IBA Environment, Health and Safety Law Committee and a partner at Gonzalez Calvillo in Mexico City, puts it: ‘We need to ensure that all institutions, public and private, are in some way complying with the Paris Agreement and its intentions.’
The legal action comes at a time when climate litigation cases are increasing. In late May, a Dutch civil court ordered Royal Dutch Shell to cut its CO2 emissions by 45 per cent from 2019 levels by 2030. A Shell spokesperson confirmed that the company ‘fully expects’ to appeal the decision.
In February, a French administrative court ruled that the French government is partly responsible for ecological damage in light of its failure to act on climate change. The case was brought in 2018 by four environmental non-governmental organisations – Oxfam France, Greenpeace France, Notre affaire a Tous and the Fondation pour la Nature et l’Homme.
As more cases are brought on the grounds of the impact of climate change, so courts begin to develop the expertise to hear them, argues Burguete-Stanek. ‘These climate cases will help other courts to become more knowledgeable about how these claims work and the principles at stake.’
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