January 26, 2021
A cross-party group of MPs agree with our recommendations: the Bank of England missed a vital opportunity to green their corporate bailout scheme, and must do more to prevent further climate breakdown.
Our work to improve the Bank of England’s green credentials have been given extra clout with new support from Parliament’s Environment Audit Committee (EAC). This week they wrote to the Bank’s Governor Andrew Bailey to highlight the failures of their corporate bailout scheme and demand greater action to tackle the climate emergency.
Their letter is the result of an EAC inquiry into Greening our post-Covid recovery, which our Executive Director Fran Boait gave evidence to back in September, and we’re delighted to see the committee heed so much of our advice.
While the EAC commended the Bank for its leadership on climate risk disclosure, this cross-party group of MPs agreed that more work is needed to ensure its future actions promote the UKs economic recovery whilst reducing our contribution to climate breakdown. The committee’s bold move, alongside our efforts to push them towards this course of action, caught media attention with coverage from the BBC, The Financial Times, The Guardian, The Times, Yahoo Finance and Business Green.
As Green MP Caroline Lucas rightly noted at the time, the Bank’s bailout scheme, the Covid Corporate Financing Facility (CCFF) was a “massively wasted opportunity” for the Bank to go green. In the letter, EAC Chairman Philip Dunne MP agreed. Accusing the Bank 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.” While stressing that any future bailout scheme – where companies are given access to millions in public funds – must publish climate-related financial disclosure.
We first raised these failings with the CCFF in our report published last July, and hope this extra political pressure, on top of the public support already gathered, results in the attachment of green strings to any future bailout scheme the Bank creates.
The EAC also advised the Bank to begin the process of aligning their corporate bond purchase scheme (CBPS) with the Paris Agreement as “a matter of urgency”, before the UN’s climate conference COP26, taking place in Glasgow later this year, to “avoid undermining UK diplomatic leadership on climate change” .
The CBPS created £10 billion in new money in 2020 to help counter the economic shock from Covid-19. But many of these funds ended up in carbon-intensive sectors, which could result – by the Bank of England’s own admission – in 3.5 degrees warming by the end of the century. Far and above the government’s own 1.5 degree target.
With COP26 on the horizon, all eyes are on the UK to lead the way to a greener, fairer economy but we’re already falling behind. Other central banks in Switzerland and Sweden have already started excluding high-carbon assets – there can be no excuse for delay. As the key public institution which underpins our financial system, the Bank of England has a vital role to play in ensuring a green Covid recovery, and a greener future for us all.
The best way to achieve that, would be via a newly updated mandate for the Bank of England, as we outlined in our last open letter to Rishi Sunak and Andrew Bailey. Alongside the New Economics Foundation, we called for the Treasury to dump fossil fuels from the Bank of England’s balance sheet, encourage more private finance towards green job-creating projects, develop a comprehensive and transparent taxonomy to classify carbon-intensive activities, and set up a new Green Investment bank.
Signed by over 120 organisations and economists, these measures provide a blueprint for the Bank to lead the charge and prevent our whole financial system pouring money into fossil fuels and plunging us ever faster towards climate breakdown. But to get the Bank to do this, it needs an updated mandate which we hope Chancellor Sunak will introduce alongside the budget in March, and which the Bank is currently considering how to operationalise.
This letter from the EAC is a huge step in the right direction. Now we must keep the pressure up on both the government and the Bank of England to turn these encouraging recommendations into concrete action, and make sure an updated mandate from Rishi Sunak, gives the Bank all the tools it needs to tackle the climate crisis.