ECB's Lagarde urges more green finance

"There is not enough finance going in the green direction," Lagarde told an online meeting of the UN Environment Finance Initiative.

The former French finance minister said the European Union would need to invest 290 billion euros ($340 billion) each year to meet its commitments under the 2015 Paris climate agreement.

However, only 100 billion euros was committed to green initiatives last year.

A lack of clear criteria for green bonds also makes it hard for investors to discern just how environmentally friendly an investment is, she said.

"So what it calls for is more involvement, continued intervention and support to correct market failures in green finance," she said.

"Is it up to a central bank to do that? No. But legislators, regulators, have a role to play."

She welcomed countries that have issued green bonds -- naming France, Germany, Belgium, the Netherlands and Lithuania -- alongside the European Parliament's proposal to identify projects that could be awarded a green label.

Lagarde has long argued for climate policies to have a more central place in the ECB's monetary policy, raising the prospect of the central bank using its massive stimulus scheme to target green bonds.

The ECB describes green bonds as those "earmarked to finance investment projects with an environmental benefit", as opposed to bonds linked to carbon-intensive industries or other "brown" sectors that contribute to global warming.

As part of a wide-ranging strategy review, which was launched at the beginning of the year and was delayed due to the pandemic, Lagarde said the ECB may revise its rule on "neutrality" -- that is, not favouring bonds from one sector over another.

Hinting at a desire to pivot to greener agenda, Lagarde questioned whether "market neutrality should be the actual principle that drives our monetary policy portfolio management."

The Frankfurt-based institution last month decided to accept a new category of sustainability-linked bonds as collateral for loans to banks from January onwards.

The Paris climate pact, signed in 2015, commits nations to keep temperature rises well below 2.0 degrees celsius compared with pre-industrial levels by cutting their use of fossil fuels.