A new report from Positive Money Europe and the Sustainable Finance Lab explains how the European Central Bank can incentivize private banks to lend more money for green investments. By tweaking its Targeted Longer-Term Refinancing Operations (TLTROs) programme, the ECB could make green lending much more affordable for small businesses and households.

The EU today faces two dramatic challenges: the COVID-19 Pandemic and the climate transition. The EU’s recovery plan for the pandemic falls far short of the estimated €2 trillion needed for achieving a sustainable recovery in line with the EU’s environmental objectives.

Without a doubt, bank lending will have to play a key role in funding the recovery. With this in mind, the European Central Bank should be assigned a prominent role.

TLTROs are lending operations which the ECB uses to provide banks with cheap credit, on the basis that banks in turn loan this credit to specific sectors. The ECB currently lends over €1,300 billion to banks using TLTROs, making them one of the core instruments of the ECB’s monetary policy.

Making interest rates conditional on green lending

In this report, Jens van ‘t Klooster and Rens van Tilburg put forward a bold and novel proposal for Green TLTROs, which would drive banks’ lending towards greener housing, manufacturing and energy-intensive sectors. The Green TLTRO programme makes the interest rate that the ECB charges banks conditional on how much green loans they issue. As a result, banks will receive credit at negative interest rates if their lending contributes to the EU’s environmental objectives.

This would reverse the current situation in which TLTROs are blind to any environmental considerations, making it currently possible for banks to access free of charge funding regardless of whether they invest in a coal mine or in renewables. This blunt approach locks in a  highly carbon-intensive economy across the Eurozone, instead of helping transform it.

The Green TLTRO programme is entirely market-based, as it is designed to ensure a level playing field and retain the singleness of monetary policy, while at the same time providing a competitive advantage to banks that are successful in green lending. 

Watch our webinar with the authors:


About the report authors:

Jens van ‘t Klooster is an FWO Postdoctoral Fellow at the KU Leuven and a member of the research group “A New Normative Framework for Financial Debt” at the University of Amsterdam.

Rens van Tilburg is Director of the Sustainable Finance Lab at Utrecht University.

To reference this report, please use the following suggested citation: 

Van ‘t Klooster, J. and van Tilburg, R. (2020), “Targeting a sustainable recovery with Green TLTROs”, Positive Money Europe, September. Report available at: https://www.positivemoney.eu/2020/09/green-tltros/


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