Bank of England challenged on climate change

MPs are urging the governor of the Bank of England to take steps to avoid ‘moral hazard’ through its investments in high carbon sectors, which they say risk undermining the UK’s role in tackling climate change

The Environmental Audit Committee (EAC) has written to governor Andrew Bailey following evidence gathering as part of its ‘greening the post-Covid recovery’ inquiry.

The letter urges the governor to ensure the Bank to show continued leadership on climate change by ensuring that its future actions to promote economic recovery from coronavirus reduce the UK’s exposure of climate risk.

It warns that failure to do so could undermine the UK’s diplomatic leadership on climate change ahead of hosting COP26 in November.

The letter states that ‘the Bank is 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’.

It calls for the Bank to begin a process of aligning its corporate bond purchasing programme with Paris Agreement goals ‘as a matter of urgency’.

The EAC also says the Bank should require large companies receiving millions of pounds of taxpayer support via the Covid corporate financing facility (CCFF) to publish climate-related financial disclosures in line with the government's Green Finance Strategy, and the recommendations of the international Taskforce on Climate-related Disclosures (TCFD).

In addition, the Bank should write to all the companies that have already received CCFF loans to remind them that the Green Finance Strategy expects to see all listed companies and large asset owners publish disclosures by 2022.

Philip Dunne, EAC chair, said: ‘We are at a crunch point not only to mitigate the effects of climate change, but to rescue vast swathes of the economy from the impacts of successive lockdowns due to coronavirus.

‘It makes sense to tackle both together, offering a “reset button” to design an economy fit for net zero Britain.

‘The Bank’s corporate bond purchases are currently aligned with a catastrophic 3.5 degree temperature rise by 2100 - far exceeding the Paris Agreement goal of limiting global warming to 1.5 degrees celsius.

‘We are calling on the Bank to show leadership, once again on climate change, in the year the UK hosts COP26, by ensuring its actions to promote recovery also reduce the UK’s exposure to climate change risk.’

The Bank has indicated it will respond in full to the EAC in due course.

In a statement, the Bank said: ‘Climate change is a strategic priority for the Bank. 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.

‘As the Governor told the Treasury Select Committee in November, work to consider how best to take account of climate considerations in our corporate bond portfolio is already underway at the Bank.’

The CCFF scheme closed to new applications on 31 December, and will close to new borrowing in March - with all borrowings due for repayment by March 2022.

EAC letter to the Bank of England governor

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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