• How the agrifood sector is becoming more sustainable


    Climate change and the struggle to prevent it pose enormous challenges for agrifood production in Spain. In turn, improving the sustainability and resilience of the sector will be key to achieving the environmental targets set out in the European Green Deal. Agri-environmental indicators show that, despite some progress in recent years, the sector needs to tackle significant aspects, such as reducing the use of chemical pesticides, fertilisers and antimicrobials in agriculture, as well as improving animal health and welfare, increasing efficiency in the use of energy and water resources, promoting food consumption that is more sustainable and healthier and reducing food loss and waste, fostering a circular economy. The new CAP, with eco-schemes as its key measure, and the Next Generation EU funds will support the sector’s green and digital transition.



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    The threat of climate change and transition to a sustainable food system

    Spain’s agriculture has traditionally benefited from a privileged geographical location and climate but it is particularly vulnerable to climate change. Increased soil erosion, floods, droughts and wildfires, along with an increase in pests and diseases, are just some of the direct effects. In turn, primary sector activity also contributes to climate change: crop specialisation and intensification, the use of chemical inputs and the industrialisation of livestock production all have negative impacts on water, soil, air, biodiversity and habitat conservation.

    Agriculture contributes to climate change and, in turn, suffers directly from its consequences

    It must therefore move towards a new model that protects the natural resources on which it depends.

    EU countries are increasingly aware that they need not only to mitigate climate change but also adapt to it. Consequently, given growing concerns for the environment, the agrifood sector must move forward in its transition from a system that emits greenhouse gases (GHG), demands a large amount of natural resources and also pollutes them, to a new model, increasingly widespread, that provides healthy, nutritious food sustainably, protecting the natural resources on which agricultural activity itself depends.

    In addition to improving the sustainability of agrifood production and downstream distribution, another important lever for change is to promote healthier and more environmentally sustainable consumption patterns. For example, a diet with a larger proportion of vegetables, organic foods, seasonal and local produce. Similarly, the reduction of food loss and waste and promotion of the circular economy are also key factors in moving towards a sustainable food system, as stated in the European Commission’s «Farm to Fork» strategy.

    The Farm to Fork strategy

    The Farm to Fork strategy
    Source: European Commission.
    From the European Green Deal to the CAP Strategic Plans

    The EU is deploying a wide range of tools to provide stakeholders with mechanisms and incentives to support this transition to a sustainable food system and, in turn, to help achieve the targets set out in the European Green Deal. One important addition in the reformed Common Agricultural Policy (CAP), which will enter into force in January 2023, is the drafting of National Strategic Plans to establish priorities in terms of aid and incentives for the various production subsectors.6The star measure is eco-schemes, which are voluntary and reward sustainable practices. Spain’s Ministry of Agriculture has proposed two eco-schemes, with a budget of 1,107.49 million euros, which group sustainable practices into two areas: agroecology and low carbon agriculture. The first group includes activities such as pasture management using sustainable mowing, crop rotation and the maintenance of non-productive areas and other biodiversity aspects. The second group includes extensive grazing, conservation agriculture and the maintenance of living or dead vegetation cover.

    • 6. Spain’s Ministry of Agriculture, Fisheries and Food must submit its Strategic Plan to the European Commission by 30 December 2021.
    The new CAP, with eco-schemes as its key measure,

    together with Next Generation EU funds, will support the sector’s green and digital transition.

    In addition to the CAP, the European NGEU funds will also help to finance the green and digital transition of the primary sector. In particular, item 3 of Spain’s Recovery, Transformation and Resilience Plan, aimed at the environmental and digital transformation of the agrifood and fisheries system, provides for an investment of 1,502.8 million euros. The plan is based on four fundamental pillars: (i) improving efficiency in irrigation, (ii) promoting sustainability and competitiveness in agriculture and livestock farming, (iii) a digitalisation strategy for the agrifood sector and the rural environment, and (iv) modernising the fisheries sector, by promoting sustainability, research, innovation and digitalisation.

    Environmental indicators in the primary sector

    The European Commission has analysed the situation of individual Member States in relation to their contribution to each of the Green Deal ambitions. The table below lists these targets and the reference values of these indicators for the main countries.7

    To make Europe the first climate-neutral continent by 2050, the first milestone has been set for 2030: reduce greenhouse gas (GHG) emissions by at least 55% compared with the 1990 level. While GHG emissions from EU agriculture have fallen by a significant 20% since 1990, no progress has been made since 2005. And in Spain the situation has been reversed: emissions have increased since 1990 (6.5%) with just a modest reduction since 2005 (–3.7%).

    • 7. «Commission recommendations to Member States as regards their strategic plans for the CAP», European Commission, December 2020.
    In relative terms, GHG emissions by Spain’s agricultural sector

    are lower than the EU average, which has set itself the target of at least 55% below 1990 levels by 2030.

    Despite this trend, it is important to note that, in relative terms, the sector is responsible for 12.0% of the economy’s total GHG emissions compared with an EU average of 12.7%. Furthermore, if we take into account the fact that the primary sector contributes 2.9% of GDP compared with 1.6% in the EU, the result is that GHG emissions by Spain’s agrifood sector per unit of GVA are significantly lower than the European average (1.2 kg/euro compared with 1.7 kg/euro in the EU).8 Similarly, emissions from agriculture per unit of agricultural land (tonnes of CO2 equivalent per hectare) are lower in Spain (1.6 compared with 2.5 in the EU).

    The second EU milestone is contained in the Farm to Fork strategy, which sets a target of 50% reduction in the use and risk of chemical pesticides by 2030. In recent years, Spain has significantly reduced the use of this type of chemical and the challenge is to continue moving in this direction. The target for antimicrobial resistance is a 50% reduction of the overall antimicrobial sales for farm and aquaculture animals by 2030, compared with the EU baseline in 2018. In this respect, Spain lags behind the EU average.

    On the other hand, Spain performs positively both in its share of agricultural land used for organic farming, an aspect we discuss in more detail in the next section, and the proportion of agricultural land occupied by highly diverse landscape features. In this case Spain, with 13.2% of its land, already exceeds the target of 10%.9

    • 8. Data from the European Commission’s Common Monitoring and Evaluation Framework (CMEF) for the CAP 2014-2020, https://agridata.ec.europa.eu/extensions/DataPortal/cmef_indicators.html
    • 9. EU Biodiversity Strategy 2030.

    European Green Deal targets and reference values

    European Green Deal targets and reference values
    Notes: GHG stands for greenhouse gases. UAA stands for utilised agricultural area. Source: CaixaBank Research, based on the European Commission’s COM (2020) 846.

    Nitrate pollution from agriculture remains one of the greatest pressures on the aquatic environment. In this respect, the EU has set a target of reducing nutrient losses by at least 50% by 2030 while ensuring there is no deterioration in soil fertility, an aspect in which Spain needs to improve considerably. An increasing number of EU countries are also affected by water scarcity, often caused by excessive abstraction of water for agriculture and livestock. Climate change will further aggravate the problem of water availability in many regions, including Spain.

    Finally, the new CAP establishes digitalisation as a priority across the board, believing that the transition towards a sustainable food system must be supported by knowledge, innovation and digitalisation. In this respect, one key factor in developing rural areas and reversing their depopulation is the availability of a fast, reliable internet connection. While there has been a notable increase in the proportion of households in rural areas with next-generation broadband access, there is still a significant gap with respect to urban areas. The goal is to cover 100% of the population by 2025.10

    • 10. This target is included in the Agenda España Digital 2025.
    58.7% of Spanish households in rural areas

    had access to fast broadband internet in 2019. The goal is to cover 100% of the population by 2025.

    The green and digital transition of European agriculture is also creating new business opportunities which the sector must take advantage of, for example by better aligning its production with evolving consumer tastes. Sustainability will become a competitive advantage for those companies and farms that achieve a balance between economic growth, environmental care and social well-being, while those that fail to comply with environmental standards will be penalised by increasingly demanding and environmentally aware consumers who identify with the most sustainable brands and products.

    A firm commitment to boosting organic production

    The commitment to more sustainable production schemes, such as organic farming,11 is relentless. Spain, with more than 2.44 million hectares of these crops in 2020, is the first country in the EU and the third in the world after Australia and Argentina. However, in terms of its share of utilised agricultural area (UAA), it is above the EU average, as noted in the previous section, but well below leading countries such as Austria, Estonia and Sweden, which exceed 20%. Four million additional hectares would be needed to achieve the 25% target set in the Organic Action Plan.

    • 11. Organic farming is a system of agrifood production and management that combines the best environmental practices, a high level of biodiversity and preservation of natural resources and the application of high animal welfare standards, so that products are obtained from natural substances and processes (MAPA).

    Share of utilised agricultural area under organic farming

    Last actualization: 13 October 2021 - 16:38

    Regarding organic operators,12 almost 90% out of a total of 50,047 in 2020 were primary producers while the rest were industrial operators and traders. However, the number of operators is growing much faster (more than double) further down the food chain.

    • 12. An organic operator can be an individual or company and must meet certain requirements to be able to produce, process, prepare or package food of agricultural origin in order for it to be marketed using the terms ecological, biological or organic. In Spain there is a General Register of Organic Operators (REGOE) that collates the information provided by each autonomous region.

    By region, Andalusia leads the field both in terms of land under organic farming, with more than 45% of the total, and in terms of organic livestock farms, with almost 60%. By type of crop, cereals for grain production come top (43% of the total) and, by type of livestock, cattle (48%). Compared with other countries, the Spanish agrifood sector is the world’s leading organic producer of olive oil and wine and the second for citrus fruits and vegetables.

    However, one of the challenges facing organic production in Spain is the low domestic consumption: per capita consumption of these products in 2019 stood at 50.2 euros, a far cry from countries such as Denmark or Switzerland, which exceed 300 euros. As a result, most of Spain’s organic produce, around 60%, is exported.13 The change in habits brought about by the pandemic has boosted healthier, more sustainable and local consumption, so the trend in domestic consumption of organic produce is clearly upward.

    • 13. Sociedad Española de Agricultura Ecológica (SEAE), MAPA (2021), «Análisis de la caracterización y proyección de la producción ecológica española en 2019» and Ecovalia (2021), «Informe anual de la producción ecológica en España».
    Organic farming in Spain, on the rise

    Area under organic farming

    Last actualization: 13 October 2021 - 16:38

    Organic operators in the primary sector (producers)

    Last actualization: 13 October 2021 - 16:39

    Organic operators in the secondary sector (manufacturers and processors)

    Last actualization: 13 October 2021 - 16:40
    Destacado Economia y Mercados
    Destacado Analisis Sectorial
    Destacado Área Geográfica

Central banks and climate change: to act or not to act

What role can central banks play in the fight against climate change? How could the ECB incorporate climate criteria into its decision-making processes, within the framework of its strategic review?

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Skyline de Londres dibujado sobre una hoja de árbol

Both individuals institutions can contribute to the fight against climate change. We, as consumers, can play our part as consumers, for example, by choosing products and services with a smaller carbon footprint. The public sector can play an even bigger role, by incentivising investment to improve energy efficiency and develop cleaner technologies and, above all, by introducing a carbon price. What about central banks? What role can they play? In this article, we focus on how the ECB (within the framework in the context of its strategic review) could incorporate climate criteria into its decision-making processes.

Why central banks should be proactive

Central banks in advanced economices – including the ECB – have price stability as their mandate. Some also set targets for other macroeconomic variables, such as employment. In any case, none includes the fight against climate change among their objectives. However, there is broad consensus that climate change has important implications for the economy and price stability, which central banks cannot ignore. As an example, the greater frequency and severity of adverse weather events could increase volatility in economic growth and price fluctuations. Indeed, some models estimate that the mere expectation of this happening is already affects inflation expectations and reduces the natural rate of interest,1 limiting the (already scarce) margin that monetary policy has to stimulate the economy. For the euro area, this factor poses an additional challenge for the ECB, as the impact of climate change is different across member states.

Moreover, as the EU treaties command, the ECB shall support the general economic policies in the Union, without prejudice to price stability. Since the fight against climate change is one of the European Commission’s strategic objectives (the Green Deal and the Next Generation EU recovery fund are a clear sign of this commitment), the ECB not only could, but should, incorporate climate change into its decision-making processes.

On the other hand, climate risks pose a threat to financial stability. They also pose a threat to the central bank itself, among other reasons because its balance sheet is exposed to climate risks through the sovereign and corporate debt securities it acquires on the market. Thus, in order for monetary policy to be correctly implemented, central banks would also need to properly manage their assets’ exposure to climate risks.

  • 1. See A. Dietrich et al. (2021). «The Expectations Channel of Climate Change: Implications for Monetary Policy». CEPR Discussion Paper 15,866.
Why central banks should not be proactive

There are also arguments against central banks playing an active role in the fight against climate change. On the one hand, it could be interpreted that, by acting in this area, monetary institutions would be overstepping their current mandates. Specifically, while there is broad consensus on the need to tackle climate change in the scientific sphere, it is a political decision. Governments are responsible for collecting society’s mandate in this area and, consequently, they are the main players in the sphere of climate policy. In this regard, a central bank taking sides and influencing the allocation of economic resources without a democratic mandate to do so could be perceived as a deterioration of its political independence. Furthermore, a central bank can have only a limited direct impact on emissions.

On the other hand, if a central bank decided to favour assets from less polluting sectors, it could be considered to be in breach of the principle of market neutrality.2 That said, in Europe, this principle has some caveats. The EU treaty specifies that the ECB should act in accordance with «the principle of an open market economy with free competition, favouring an efficient allocation of resources». In this regard, when there is a market failure (such as the lack of internalisation of climate risks in financial asset prices), resource allocation can be inefficient. Following this argument, the ECB’s discrimination of assets based on their exposure to climate risks could be coherent with the treaties in that it helps to mitigate a market failure and improve allocation efficiency. Indeed, the current composition of the ECB’s corporate debt portfolio does not comply with the principle of market neutrality. In particular, ECB’s corporate bond portfolio adequately replicates the full range of eligible bonds, but not the euro area’s economic structure.3 In addition, given the greater participation of emission-intensive sectors in the European corporate bond market, the ECB’s corporate bond portfolio has a significant carbon bias.

  • 2. Asset purchases should reflect the eligible market in order to ensure that the relative prices of securities in the market are not distorted.
  • 3. See M. Papoutsi and M. Schneider (2021). «How unconventional is green monetary policy?». Working Paper.
Euro area: debt held by the ECB, relative weight in the economy and emissions by sector
How could the ECB incorporate the fight against climate change into its mandate?

While central banks can act to help tackle climate change, it seems clear that they should not lead this fight. Instead, they can (within the limits of their mandate) complement the action of governments. In this regard, the ECB has several monetary policy and banking supervision tools at its disposal which it can use to incorporate climate risks into its decision-making processes and operations (see table).

Options for the ECB to incorporate climate criteria into its operations

First of all, the ECB could adjust its private asset purchase programme,4 only acquiring debt from companies that disclose certain climate information or that have a climate rating. This option, on which there is consensus in the ECB’s Governing Council, would improve the transparency of climate information and thus help the financial markets to classify issuers and assets according to their exposure to climate risks (thereby facilitating the internalisation of these risks within asset prices).

The ECB could also go a step further and discriminate on the basis of climate risks, showing a preference for the debt of companies that meet certain climate criteria, or excluding issuers and assets that are more carbon intensive (and thus more in conflict with the EU’s decarbonisation targets).5 These measures, while more proactive, would be difficult to implement without consistent disclosure of climate risks by companies, a practice which is still in its infancy and only applies to listed companies. They also raise some controversy within the ECB’s Governing Council, for several reasons. Firstly, as mentioned, they could conflict with the principle of market neutrality.6 Secondly, they are a temporary solution (asset purchases are part of the ECB’s expansive policy and theoretically will only be used for a limited time, whereas climate change is a long-term challenge). Thirdly, they could carry a reputational risk for the ECB if issuers turned out to be less green than they report.7

The second tool available to the ECB could make adjustments to its credit operations with financial institutions and to its collateral assets in order to favour green exposures, while making brown exposures less attractive. In particular, in addition to making access to finance conditional on the disclosure of climate information, the ECB could also adjust the interest rate of some of these operations depending on what the credit is to be used for. For example, the ECB could launch a green TLTRO financing programme in which the interest rate paid by banks is conditional on an increase in lending to activities aligned with the EU’s green taxonomy. Similarly, the ECB could adjust the valuation of the assets presented to it as collateral based on the climate risks it identifies (in fact, the ECB already accepts collateral with different haircuts,8 depending on the risk profile). Thus, it could assign a smaller haircut to assets that are more aligned with the EU’s green taxonomy.

In any event, given the current lack of consistent and standardised corporate information on exposure to climate risks, we can expect the ECB to act with caution and, at least initially, to prioritise ensuring broad disclosure of climate risks by firms and financial institutions. After all, such a practice would contribute to the internalisation of climate risks in asset prices and would serve as a basis for further action in this area.

Finally, in the field of banking supervision, the ECB has already begun to take steps to improve the quality and quantity of the available climate data, as well as the understanding of climate risks and their impact, so that they can be treated as a financial risk. A key measure in this regard is the publication of the ECB guide on climate-related and environmental risks,9 which focuses on the disclose of climate information by banks, among other aspects. In addition, the ECB has asked banks to draw up action plans to align their practices with the proposals set out in the guide (which will form part of the annual Supervisory Review and Evaluation Process, or SREP). Finally, another key measure is the launch in 2022 of climate stress tests, in which banks will perform a self assessment of their exposure to climate risks and their level of preparedness to address them – although this exercise will not have an impact on banks’ capital requirements for the time being.


  • 4. Adjustments to the public sector purchase programme (PSPP) would be more difficult to implement, as the ECB would find it difficult to differentiate between policies and due to the lack of country-by-country climate indicators.
  • 5. Some advanced-economy central banks have already moved in this direction: the Bank of Sweden (Riksbank) only buys bonds from companies that meet international sustainability rules and standards, while the Bank of England recently announced that it would adjust its corporate bond purchase programme to incorporate issuers’ climate impact.
  • 6. Moreover, for now there is still only a limited range of green bonds in existence, so if the ECB were to buy only green bonds, it could not implement its monetary policy properly.
  • 7. The issuance of green bonds does not necessarily translate into lower or decreasing emissions by companies. See T. Ehlers et al. (2020). «Green bonds and carbon emissions: exploring the case for a rating system at the firm level». BIS Quarterly Review.
  • 8. A haircut is applied to the value of these assets to mitigate the ECB’s liquidity and credit risks.
  • 9. ECB Banking Supervision (2020). «Guide on climate-related and environmental risks».