MPs ask Bank of England to raise green standards for bond purchase 

  • January 25, 2021 10:29 PM AEDT
  • Team Kalkine
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MPs ask Bank of England to raise green standards for bond purchase 

Summary

  • The parliamentary Environmental Audit Committee has written to the BoE’s chief to align itself with the goals of the Paris climate agreement.
  • The central bank’s spokesperson has responded that the climate change remained a strategic priority and a full response to the concern would follow soon. 

The British Members of Parliament are pushing the Bank of England to realign its corporate bond portfolio with the global climate agreement. This should be done before the UN climate change summit is held in November, they insist. The MPs have described the bank’s buying of high-carbon assets as a moral hazard.  

Last Friday, the members of the parliamentary Environmental Audit Committee (EAC) had written to the central bank’s governor Andrew Bailey to lead the national climate change initiative by ensuring that the BoE’s corporate bond buying programmes are duly aligned with the Paris agreement’s objectives.  

The members said that the purchases needed to avoid any no strings financing for carbon-intensive sectors like oil and gas. They wrote that while the bank’s quick response to the coronavirus-led crisis was commendable, but it was at a high risk of creating a moral hazard if it kept buying high-carbon bonds without putting any time-bound conditions on such firms to quickly move to net zero emission targets.  

The UK, which is a Paris signatory, has agreed to retain the global warming to 1.5°C, while the central bank’s purchases are only aligned with a much higher 3.5°C temperature rise target by the year 2100.   

The central bank purchases corporate bonds to reduce the cost of borrowing for British businesses. The EAC said that the changes should come about urgently, else it could undermine the UK’s leadership on climate change. The MPs also said that the bank should insist on larger companies drawing support from its Covid Corporate Financing Facility to disclose their climate-related financial statistics. 

Environmental experts agreed to the MPs’ demand saying that the central bank’s decisions have a far-reaching impact in ensuring a greener recovery from the coronavirus pandemic.  

The Bank of England has responded to the EAC’s concerns by saying that climate change was one of its strategic goals and it would respond to the MPs in due course of time.  In fact, the BoE published its first-ever carbon footprint analysis last year. The analysis revealed that the bank’s investment holdings were consistent with a contribution of a global temperature rise of 3.5°C by 2100.  

The BoE had also informed about its elaborate work programme on climate change. It involved stress testing of large-sized British banks and insurers against climate-related financial risks, it said. The programme also elaborated working globally with the BoE network for ‘greening’ the banking and financial system.  

 


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