(Adds quotes from De Cos)
MADRID, Feb 25 (Reuters) - Central banks’ main objective on climate challenges should be to make sure that markets correctly assess the risks, ECB policymaker Pablo Hernandez de Cos said on Tuesday, warning against an indiscriminate increase in issuance of green bonds.
The European Central Bank started a one-year review of its policy framework last month. ECB President Christine Lagarde, who took office on Nov. 1, has made finding a way to combat climate change one of her priorities.
“The central banks’ main objective, jointly with other public agents, should be to allow the market to correctly assess climate risk,” said De Cos, who heads the Bank of Spain.
In January, French central bank governor Francois Villeroy de Galhau said that the ECB should build climate risk into its lending rules and economic models rather than just buy green bonds via its multi-trillion-euro purchase scheme.
Green bonds are used to finance climate-friendly projects such as clean transportation and clean energy.
De Cos said there was an ongoing discussion about what constituted green assets, with some market players wary that “greenwashing” — companies claiming environmental credentials they do not deserve — could fuel issuance of such bonds.
“Some issuers could try to appear more aware of climate change, for reasons of image and corporate responsibility, than what their actions really imply, and this could generate reputational problems in the future,” said De Cos.
European Union governments are still debating rules to govern which financial products can be called “green” and “sustainable”.
In January, Villeroy rejected proposals that the ECB’s 30 billion euros per month of bond purchases should be turned into “green quantitative easing” but said the ECB should overhaul its rules on accepting collateral to reflect climate-related risks.
To preserve financial stability, de Cos said central banks should oversee and make sure that lenders correctly incorporate climate risks and focus on creating adequate conditions for capital flows in order to move towards a sustainable economy. (Reporting By Jesús Aguado; Editing by Catherine Evans)