Bank must look beyond corporate bonds to fulfil green mandate

FOR IMMEDIATE RELEASE

London, 21 May 2021

In the first detailed proposal since the Treasury added a green objective to its mandate in March, the Bank of England has today set out a long-awaited paper detailing a possible pathway towards decarbonising its Corporate Bond Purchase Scheme (CBPS). 

The paper reiterates that the £20 billion portfolio is currently skewed towards sectors with higher carbon footprints and that financial markets are failing to accurately price climate risk into asset prices. 

After coming under fire from civil society groups and researchers for propping up big polluters, the Bank has set out proposals to ‘tilt’ its portfolio towards companies demonstrating a commitment to decarbonisation, including credible targets and regular reporting. Issuers “that fail to keep pace with rising standards” and engage in activities that are incompatible with the net-zero transition may be actively excluded from monetary policy operations.

Positive Money Economist David Barmes said:

“The Bank has taken an important step by setting out some possible routes to greening its heavily-criticised corporate bond portfolio, and it’s promising that the worst offenders may be excluded from future purchases altogether. 

“These actions would send a strong signal to the rest of the economy, but in practice may only move a relatively small amount of the hundreds of billions of pounds pouring into dirty activities every year. 

“That’s why we also need to see plans on how the Bank will green the rest of its monetary operations as well as its financial policies. In order to meaningfully put its new mandate into practice, the Bank must rapidly take measures to steer lending in a sustainable direction, by penalising dirty lending and incentivising green alternatives.”

Notes

1. It’s not easy being green – but that shouldn’t stop us: how central banks can use their monetary policy portfolios to support orderly transition to net zero – speech by Andrew Hauser, 21 May 2021: https://www.bankofengland.co.uk/speech/2021/may/andrew-hauser-speech-to-launch-discussion-paper-at-bloomberg-investing-for-net-zero  

2. Positive Money’s ‘Green Central Banking Scorecard’ recently revealed the huge amount of action central banks need to take to align finance with governments’ environmental commitments: https://positivemoney.org/publications/green-central-banking-scorecard/.

3. Positive Money is a research and campaign organisation working towards 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. www.positivemoney.org.

4. For more information or to arrange a briefing/interview with a spokesperson, please contact press@positivemoney.org.uk or Anna Pick on 07948802104.