Environmental Audit Committee calls on central bank to align its corporate bond purchasing programme with global climate goals
The Bank of England (BoE) is facing pressure from MPs and campaigners to take urgent action to clean up its investments before the COP26 Climate Summit in Glasgow, amid fears that vast sums of public money invested in high-carbon industries could damage the UK's international reputation and derail its climate goals.
In a letter today to the BoE governor Andrew Bailey, the Environmental Audit Committee (EAC) of MPs said the bank should move urgently to align its corporate bond purchasing programme with global climate goals and demand climate disclosures from all companies that it provides with Covid-19 bailouts.
EAC chair Phillip Dunne warned the central bank was at "risk of creating a moral hazard by purchasing high-carbon bonds and providing finance to companies in high-carbon sectors without placing any conditions on them to make a transition to net zero".
With the BoE's climate-related financial disclosures revealing the bank's activities were in line with a dangerous global temperature increase of 3.5C - more than double the 1.5C limit recommend by scientists - Dunne said the BoE must align its corporate bond purchase scheme with the goals of the Paris Agreement "as a matter of urgency".
A failure to do so would undermine the UK's diplomatic leadership on climate change ahead of the COP26 Climate Summit it is set to co-host in the autumn, while also running counter to the government's stated aim to deliver a green recovery from the coronavirus crisis, according to the Committee.
In addition, the BoE should change its policy to require large companies receiving taxpayer support from the bank's multi-billion-pound corporate bailout scheme to publish their own climate-related financial disclosures, Dunne argued.
The BoE should now reach out to those companies that have already secured loans through the programme to remind them the government expects all listed companies and large asset owners to publish climate-related risk disclosures by 2022, as part of its Green Finance Strategy, he said.
Responding to the demands, a spokesperson from the BoE emphasised work to consider how best to incorporate climate considerations into its corporate bond portfolio was "already underway". They added that the bank's Covid-19 corporate bailout scheme was now closed to new applications, with the window for all new borrowing set to end this March.
"Climate change is a strategic priority for the bank," the spokesperson stressed. "We have an ambitious work programme on climate change, from the stress testing of the largest UK banks and insurers against climate-related financial risks through to working internationally with the central bank network for greening the financial system - a network of which we were a founding member."
The BoE would formally respond to the EAC's demands "in due course", they added.
But campaigners want the BoE to take more immediate action to ensure that large swathes of taxpayer money handed out to support businesses during the pandemic does not 'lock in' decades of high-carbon economic activity that could undermine global decarbonisation efforts.
While a government bailout of Celsa Steel in the summer was reported to have included environmental conditions, the BoE and Treasury have so far resisted calls to introduce a formal policy which would require carbon-intensive businesses, such as airlines, to agree to meet specific green conditions in order to qualify for public loans.
Fran Boait, executive director of campaign group Positive Money, said the BoE risked harming domestic and global climate efforts if it did not take urgent action to reduce the carbon footprint associated with its investments.
"As the public institution overseeing and underpinning our financial system, the actions of our central bank have a key role to play in ensuring a green Covid recovery," she said. "It's more important than ever that the Bank of England gets its house in order, especially with all eyes on the UK ahead of the COP26 climate summit.
"The Chancellor needs to make it clear to the BoE that its market-shaping policies must support rather than hinder the government's climate targets. As a first step ahead of COP, the Bank should show its seriousness by dumping fossil fuels from its balance sheet, alongside further action to bring the carbon footprint of finance down from more than 3.5C warming, and in line with the Paris Agreement."