Bank of England confirms plans to incorporate climate into asset purchases: Positive Money response

A senior Bank of England official announced today that the Bank is seeking the Treasury’s backing to incorporate climate risk into its asset purchases over the coming year. Responding to the news, research and campaign group Positive Money said that progress so far has been worryingly slow, and urged the Chancellor to update the Bank’s remit to align its quantitative easing (QE) programme with the government’s own climate commitments alongside the next Budget.

In a speech to the Investment Association, Andrew Hauser, Executive Director for Markets at the Bank of England, said:

“2% of the Bank’s Asset Purchase Facility consists of sterling corporate bonds, acquired as part of the MPC’s quantitative easing programme. As we stated in our TCFD disclosure, the framework for the MPC’s asset purchases is determined by the Committee’s remit given to it by the Chancellor. But, subject to the Government indicating a willingness to update this remit, we will over the coming year be considering how to incorporate climate factors into decisions on the mix of financial assets, whilst still achieving our policy aims.”

Hauser’s comments come after Bank of England governor Andrew Bailey told MPs he would make decarbonising the Bank’s corporate bond purchases “a priority”, in response to an open letter co-ordinated by Positive Money and others in March. However Bailey has since failed to act on this commitment, with fossil fuel companies still featuring in the updated list of eligible bonds for further rounds of corporate QE, published in April. 

In June the Bank of England’s first ever climate-related financial disclosure revealed that if the projected emissions performance of the Bank’s corporate bond portfolio was representative of the emissions performance of corporates globally, the world would experience 3.5C of heating by the end of the century. The Bank’s corporate QE programme has drawn particular criticism from campaigners for including bonds from fossil fuel companies such as Shell and BP.

Fran Boait, executive director of Positive Money, said:

“It’s positive to hear the Bank of England is finally taking forward proposals to ensure its asset purchases aren’t fuelling the climate crisis, though progress seems worryingly slow. The Bank says it will consider incorporating climate over the coming year, more than six months since Andrew Bailey told MPs he would make it a priority in March.

“Action needs to happen more urgently, especially with the prospect of more corporate quantitative easing as the Bank of England responds to the worsening economic outlook. The Bank’s own disclosure suggests its corporate bond purchases are currently fuelling 3.5C global heating, more than double the 1.5C limit the government is committed to pursuing through the Paris Agreement. 

“The Bank of England and the Treasury should work to ensure the central bank’s remit is updated to allow it to support the government’s net zero strategy by the next Budget.”

Notes

1. “From hot air to cold hard facts: how financial markets are finally getting a grip on how to price climate risk and return – and what needs to happen next” – speech by Andrew Hauser, published 16 October 2020: https://www.bankofengland.co.uk/speech/2020/andrew-hauser-the-investment-association-viewpoint 

2. Positive Money campaigns for a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters. https://positivemoney.org/  

3. For more information or to arrange a briefing/interview with a spokesperson please contact press@positivemoney.org.uk or Simon Youel on 07817765517