Europe’s determination to include climate risk in financial regulations won’t be thrown off track by the Trump administration’s interventions, according to a senior European Central Bank official.
“We always go back to our mandate,” Irene Heemskerk, head of the ECB’s Climate Change Centre, said in an interview. “We see climate and environmental risk — regardless of any political wind that goes around — as relevant for banks to manage.”
The comments mark a red line dividing how officials in Europe and the administration of Donald Trump view climate risk. In Europe, the goal of achieving net zero emissions is enshrined in law. In the US, Trump’s energy secretary, Chris Wright, has called net zero a “terrible” and “sinister” goal.
Europe’s requirement that companies disclose environmental, social and governance metrics has sparked US threats of retaliation. GOP lawmakers have railed against the so-called extraterritoriality of European ESG rules for due diligence and reporting. And Commerce Secretary Howard Lutnick has said he’s willing to deploy “trade tools” to fight environmental requirements that might affect American companies.
Backlash against ESG
Europe isn’t immune to the backlash against ESG. Lawmakers in the bloc and its executive arm — the European Commission — have put forward proposals to simplify rules in order to aid competitiveness. But Heemskerk says capital allocators will continue to put pressure on companies to provide ESG data.
“Banks — or any financial market participants — would need to know it anyway,” she said.
And even though Europe is looking to cut some of its red tape, the European Commission’s so-called competitiveness compass isn’t removing its decarbonisation goal, Heemskerk said.
“There is still a transition risk,” which requires banks to know whether they’re invested in high-emitting companies, and how they’re managing the associated risks, she said. “Besides, we still face physical risk. This is one of the driest springs ever recorded across parts of Europe.”
Almost immediately after taking office in January, Trump pledged to pull the US out of the Paris climate agreement. That same month, the US exited the Network for Greening the Financial System, which is a global group of central banks and financial supervisors set up to address climate change. The Federal Reserve also has sought to water down environmental efforts within the Basel Committee on Banking Supervision, Bloomberg has reported.
Despite US pushback, a global effort to fight global warming “continues, and there are still a lot of central banks and supervisors around the globe working together on this,” Heemskerk said. At the Basel Committee, for example, “extreme weather events are still on the radar,” she said.
“Ideally you have more cooperation on this,” she said. “But it’s up to everyone to decide and set their own priorities.”