More than 100 leading experts and civil society figures have signed a letter co-ordinated by Positive Money calling for the incoming Bank of England governor to accelerate efforts to decarbonise our financial system.
With everything else going on, from post-Brexit bargaining to the threat of a coronavirus-fuelled financial meltdown, there was a risk that the climate crisis might be left off the agenda for incoming Bank of England governor Andrew Bailey.
But working with our friends from the New Economics Foundation, Greenpeace, the SOAS Centre for Sustainable Finance and E3G, we’ve made sure that climate stays high up in the new governor’s in-tray when he takes over on Monday 16th, where it belongs.
Ahead of his pre-appointment hearing in front of MPs on the influential Treasury Select Committee today, we coordinated an open letter to Andrew Bailey on climate which has been signed by more than 100 leading experts and civil society figures.
Among the 101 signatories are former government chief scientific advisor Sir David King, ex-Citigroup chief economist and former Bank of England Monetary Policy Committee member Willem Buiter and conservationist Jane Goodall, as well as three members of the UK’s influential Committee on Climate Change (CCC) and four expert advisers to the UK’s citizen Climate Assembly.
As chief regulator of the UK’s financial system, the Bank of England has a key role to play in facilitating the huge re-allocation of capital required for the transition to a green economy. Under outgoing governor Mark Carney, the Bank made a welcome start by disclosing it’s climate risk and recognising the severity of the threat climate change posed to economic and financial stability, warning that up to $20tn could be lost from stranded carbon assets.
But as Mark Carney leaves, a change in leadership risks the momentum we need to green the financial system being lost. And with less than a decade left to decarbonise and stay below the 1.5c upper-safe limit upper-safe limit for global temperature rises governments have committed to in the Paris Agreement, we simply can’t afford progress to slow.
As our letter warns, the measures currently being taken by the Bank of England “are unlikely to be enough” to help the government meet its climate targets. Mark Carney has warned that the financial system is currently funding global temperature rises of more than 4C – more than double the target we need to stay below if we’re to avoid truly catastrophic impacts to life on earth.
The letter therefore urges Andrew Bailey to use his new position as head of Britain’s central bank to “lead the way” and align finance with a 1.5c target ahead of this year’s global climate summit in Glasgow (COP26). We’ve asked him to take three specific steps:
Mandatory disclosure of climate risk
Firstly, the Bank must force all the firms it regulates to disclose their climate risk. This would illustrate the extent to which firms are exposed to climate change and allow lending decisions to be adjusted accordingly. The Bank of England has started asking companies to do this voluntarily, but with less than a decade to act, we believe this crucial first step should be made mandatory “as soon as possible”.
Decarbonise monetary policy
Secondly we’re calling for the new governor to exclude fossil fuel assets from any future rounds of quantitative easing (QE) it might run after it’s previous £10bn corporate QE programme was found to have been heavily skewed towards high-carbon sectors. Under that programme the Bank bought up bonds from fossil fuel companies including Shell, BP and Total. In doing this, the Bank would “lead by example” and, as the letter states, “send a powerful signal that holding these assets undermines long-term financial stability, and is incompatible with the Paris goals”. In this spirit the Bank must also refuse to accept any fossil fuel assets from private banks as collateral.
Consider penalising high-carbon lending
Thirdly, we urge Andrew Bailey to consider using the so-called ‘macroprudential’ powers at the central bank’s disposal to clamp down on risky fossil fuel lending. This would mean the Bank of England applying the same tools it uses to manage risk in the mortgage market to guard against the risks posed by climate collapse as well. By increasing the amount of capital banks need to hold against high-carbon loans to accurately reflect the risk, the Bank of England can help stem the flow of money going towards environmental breakdown.
We hope MPs on the Treasury Select Committee will use this letter to challenge Andrew Bailey to lead the way on climate this afternoon, and factor this into their decision on whether to approve his appointment for one of the most powerful positions in our economy.
You can see the full letter and list of signatories here.