This report from Positive Money Europe and the Sustainable Finance Lab explains how the European Central Bank (ECB) can encourage private banks to lend more money for green investments. If the ECB were to adjust their TLTROs program, green loans for SMEs and households would become much more favorable.

This report, written by Jens van ’t Klooster and Rens van Tilburg, argues that TLTROs can become specific loans from the ECB to private banks with favorable terms, provided that the private bank lends the money to specific sectors. The ECB sets the interest rate based on how many outstanding green loans a private bank has. As a result, private banks can borrow money from the ECB for free or even at negative interest rates, as soon as they use this money for climate recovery.

This report therefore provides insight into how you can achieve both business and a green recovery now, during covid-19. Or as Dirk Schoenmaker, professor of Banking and Finance at Erasmus University and also SFL member, points out in the foreword to this report:

“Why finance a business-as-usual approach first and only later phase out the climate negative part of this business out, while stimulating the green part? You may as well start by stimulating the green part first.”

Rens van Tilburg further argues why it is crucial to green TLTROs:

“The TLTRO is the ECB’s ‘bazooka no one knows about’. It is massive and has a big impact on the economy. But TLTROs currently risk exacerbating unsustainable trends in bank lending, leading to more stranded-assets and intensifying climate change. This is why greening the TLTRO is crucial for the ECB to act in line with the political priorities outlined in the Next Generation EU-Recovery package and the Green Deal.”