The role of the European Central Bank in a just transition

The transition to a climate-neutral economy is one of the European Union's defining policy priorities. While the European Central Bank has increasingly incorporated climate considerations into its operations, far less attention has been paid to the social consequences of green monetary policies. This report argues that climate action and social justice are complementary objectives, not competing ones. Well-designed policies can support both environmental sustainability and inclusive economic development, while poorly designed ones risk widening regional disparities, driving unemployment, and deepening inequality - ultimately undermining public support for the green transition itself.

Climate change already threatens macroeconomic and financial stability, through supply disruptions, inflationary pressures, and rising financial risk. At the same time, the policies needed to support decarbonisation can generate short-term distributional costs, particularly for workers, regions, and households dependent on carbon-intensive activities or exposed to higher energy prices. Central banks can no longer treat these issues separately. Monetary policy inevitably shapes income distribution, employment, and investment patterns - ignoring these effects doesn't make policy neutral, it simply allows existing inequalities to deepen.

To ensure the ECB supports a just transition, Positive Money makes the following recommendations:

• Systematically assess distributional impacts: the ECB should evaluate the social and regional effects of all major green monetary policies before they're implemented, not after.

• Improve data collection: the ECB should monitor inflation, employment, and other indicators broken down by region and income group, not just EU-wide averages.

• Expand green monetary instruments, with safeguards: collateral frameworks, targeted refinancing operations, preferential lending facilities, and credit guidance should be used to support the green transition, paired with measures to offset any negative social effects.

• Coordinate more closely with other institutions: the ECB should work more closely with EU institutions, national governments, the European Investment Bank, and the Just Transition Platform.

• Adopt a more flexible approach to inflation targeting: the current framework should better accommodate climate-related supply shocks rather than reacting to them with blunt rate hikes.

• Recognise the role of fiscal policy and social protection: the ECB should acknowledge — and not undermine — the complementary role of fiscal policy and welfare systems in ensuring a fair transition.

• Promote greater diversity within the ECB: a more diverse leadership and staff would strengthen the institution's legitimacy and improve its policymaking.

Read our full report below.