Climate culprits retain eligibility for Bank of England’s coronavirus corporate QE expansion

The Bank of England’s list of eligible bonds for its corporate QE programme still includes the likes of BP, Shell, Total and a range of other carbon-intensive companies. The Bank must stick to its word and immediately exclude high-carbon companies from further asset purchases.

Only days before taking the helm as new Bank of England governor, Andrew Bailey told the Treasury Select Committee that he would make greening the Bank’s corporate bond portfolio “a priority” by shifting out of fossil fuels to make it consistent with net-zero carbon targets. And now, just a few weeks into the role, Bailey’s commitment is being tested as the Bank expands its corporate QE programme in response to the coronavirus crisis.  

In a market notice on 2nd April the Bank provided a link to its list of £130 billion worth of eligible bonds under the scheme. It will purchase at least £10 billion of these bonds. Contrary to Bailey’s promise, the list still includes bonds issued by key contributors to the climate and ecological crises, which means that these companies may be included in asset purchases. Here are some of the worst climate culprits that remain eligible for the Bank’s programme:

Oil and gas

Bonds issued by oil companies BP, BG Energy (owned by Shell), and Total constitute 2.6% of the outstanding amount of eligible bonds on the list. If the Bank carries over that percentage to actual purchases, this would translate to an additional £260 million worth of bonds on the Bank’s balance sheet. A further 6.4% are issued by companies primarily supplying gas, not all of which are directly engaged in the extraction of gas but are entirely dependent on it

Electricity

17.9% of eligible bonds are issued by electricity companies. The electricity industry in the UK has on the whole, made notable progress in lowering its carbon footprint by shifting away from coal, but it’s still not going fast enough, as evidenced by one company on the list:  Electricité de France, which has not fully divested from coal. Whilst another – General Electric – is in fact expanding its overseas coal-powered electricity production.

Mining

The only mining company with eligible bonds on offer is Rio Tinto. Despite being the second biggest mining company in the world, Rio Tinto fortunately completed its exit from coal mining in 2018 and is investing heavily in reaching a 2050 net-zero target. Nonetheless, it is worth noting that many of its extraction and refining operations remain highly carbon-intensive.

Cars and aviation

Car manufacturers BMW, Volkswagen and Toyota all feature on the Bank’s list. Rolls-Royce, which also manufactures airplane engines, makes an appearance as well, along with Manchester airport. BAE systems and Babcock International – both of which provide defence and aviation services – also make the cut. Together, offerings from these carbon-intensive companies make up 6.3% of the total outstanding value of eligible bonds. 

Food and beverage

Multinational food and beverage corporations including Nestle, Cargill, Unilever, McDonalds and Walmart are also present on the Bank’s eligibility list. While these companies are making efforts to clean up their environmental act, especially with regard to their dire track records on deforestation, their green credibility remains highly questionable. For example, a recent report exposed the vast extent of Nestle and Unilever’s dumping and burning of plastic in developing countries.

Time for the Bank to do the right thing

The Bank’s market notice states that it “intends to publish an updated list of eligible securities for the Scheme in mid-April 2020.” So Bailey still has an opportunity to stick to his word. If he ensures that climate and ecological considerations play a key role in the forthcoming updated list, this will prevent the Bank’s portfolio from becoming more carbon-intensive than it already is. 

While such criteria may be difficult to establish, a good start would be to exclude all companies directly involved in the extraction of oil and gas, and any electricity companies that still own coal-powered plants. Further, all other companies that are clearly heavily exposed to the fossil fuel industry and are themselves driving climate and ecological damage should also be considered for exclusion. 

In this time of crisis, Bailey must practise what he preaches and uphold his environmental commitments. This would represent an important step towards the Bank of England embracing a progressive climate agenda that truly serves the public interest.