ECB could tailor policy to fight climate change, Schnabel says

FRANKFURT (Reuters) - The European Central Bank must take a role in fighting climate change and could tailor monetary policy to foster a greener economy, board member Isabel Schnabel said on Friday.

The ECB is buying billions of euros worth of debt to keep borrowing costs low, but has come under fire as much of its cash goes to high polluters including oil and gas companies.

The central bank has long argued that favouring or punishing specific sectors would cross into the realm of politics, beyond its mandate, and that it must remain market neutral.

But Schnabel, the head of the ECB's market operations, said there was room for the ECB to act, even if some of the options on the table were controversial.

"For example, we could link the eligibility of securities for our purchase programmes and as collateral in our refinancing operations to the disclosure regime of the issuing firms," Schnabel said. "Then the Eurosystem would only accept collateral if it is able to fully assess climate-related risks."

But Schnabel did not mention the option of skewing bond buys towards green assets, an idea she has called problematic in the past.

Still, she rejected the idea that climate issues were beyond the ECB's mandate, arguing that there was a direct link between price stability and climate change.

"As climate change poses severe risks to price stability, central banks are required, within their traditional mandates, to strengthen their efforts to support a faster transition towards a more sustainable economy," Schnabel said.

The role of the ECB in climate change is expected to be a key part of the ECB's strategy review, which is set to end next year.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Alex Richardson)