Lagarde Says ECB Needs to Question Market Neutrality on Climate

The European Central Bank must question whether mirroring the composition of the bond market in its asset purchases is appropriate in light of climate risks, according to President Christine Lagarde.

Her argument centers on whether investors are correctly pricing bonds issued by polluting companies. With the European Union pushing an aggressive agenda to make the continent climate-neutral by the middle of the century, those assets might drop in value, posing a risk to the central-bank balance sheet.

The ECB is currently assessing how it conducts policy, looking at issues from inflation measurement to climate change. For years, it’s faced ...