Encourage green lending to Build Back Better, government and Bank of England told – report

London, 23 June 2021

Report calls on policymakers to regulate private finance and unleash green investment

Recent changes to the Bank of England’s mandate could allow the UK to lead the world on green finance ahead of COP26 while supporting small businesses and creating green jobs across the country, according to a new report published today by research groups the New Economics Foundation (NEF) and Positive Money.

The report, ‘Greening Finance to Build Back Better: A UK Roadmap Ahead of COP26’, argues that Britain’s financial system is not currently geared towards investing in the real economy, with only 2 – 5% of bank lending before the pandemic going towards SMEs, which provide 60% of private sector jobs in the UK. But the report outlines how recent changes to the Bank of England’s mandate could allow finance to be steered away from fossil fuels and speculative lending and towards green investment which supports the government’s ‘levelling up’ and Build Back Better agendas. 

The Bank of England’s monetary, financial and prudential policy committees now all have mandates to support the government’s net zero plans, following updated remits from the Chancellor earlier this year. The report calls for policymakers to take advantage of these mandate changes to:

• Unleash green investment, by greening the Bank of England’s existing lending schemes, and the Treasury coordinating with the central bank to increase public spending on a fair green transition which creates new jobs and levels up the whole country.

• Regulate private finance, by introducing higher capital requirements for fossil fuel lending to more accurately reflect the risk of these investments, and requiring all UK financial institutions to outline credible Paris-aligned decarbonisation plans

• Reform the institutional ecosystem, by establishing a green action task force and developing metrics and targets to hold officials to account on progress in shifting UK finance towards Paris-alignment

The report comes as Japan’s central bank last week announced similar plans to increase loans and investment for activities aimed at combating climate change.

New Economics Foundation chief executive, Miatta Fahnbulleh, said:

“The set-up of the current UK financial system and the government’s Build Back Better agenda are not geared towards providing the vital patient finance needed to support jobs, businesses, and local communities as part of a green recovery.

In the context of a significant green finance gap, a primary issue is the quantity and pricing of lending. The Bank with support from the Treasury can help accelerate a socially just green recovery through targeted lending schemes aimed at lowering the cost of borrowing of green activities, particularly those undertaken by SMEs and households.”

Report co-author, Positive Money senior economist David Barmes, said: 

“The government is committed to reaching net-zero emissions by 2050, but UK banks Barclays and HSBC alone have poured more than £185 billion into fossil fuels since 2016 – more than three and a half times what it would cost to power all UK homes with offshore wind by 2030.

“If the government is serious about ‘building back better’ and ‘levelling up’, then the financial system needs to change fast. As host of the COP26 climate conference this year, the UK has a responsibility and an opportunity to lead the way in reshaping finance for an economy that supports jobs and livelihoods without destroying the planet.

“With the UK’s climate leadership at stake, the Bank of England and the government must work together to accelerate the transition of the financial system – for instance by regulating dirty lending and unleashing green job-creating investment.”

Notes

1. The full report can be viewed here: https://positivemoney.org/publications/greening-finance/ 

2. The Bank of England’s latest climate disclosure report revealed that the central bank’s asset purchases are funding 3C global heating – double the 1.5C target the UK government is committed to via the Paris Agreement, 17 June 2021: https://www.bankofengland.co.uk/prudential-regulation/publication/2021/june/climate-related-financial-disclosure-2020-21 

3. Barclays and HSBC alone have poured more than £185 billion (US$255 billion) into fossil fuels since the signing of the Paris Agreement in November 2015. Banking on climate chaos, Fossil Fuel Finance Report 2021: https://www.ran.org/bankingonclimatechaos2021/

4. Aurora Energy Research, “Reaching the UK government’s target of 40GW of offshore wind by 2030 will require almost £50bn in investment”, 6 February 2020, https://auroraer.com/media/reaching-40gw-offshore-wind/  

5. UK finance is responsible for a total of 805 million tonnes of greenhouse gases. That’s 1.8 times more than the UK as a whole emitted that year and more than the whole of Germany (2019 data): Big Smoke, Greenpeace/WWF: https://www.greenpeace.org.uk/resources/big-smoke-uk-finance-report/ 

6. The International Energy Agency has warned that there can be no new oil, gas or coal development if world is to reach net zero by 2050, 17 May 2021: https://www.iea.org/reports/net-zero-by-2050 

7. The Bank of Japan announced on Friday a new scheme to provide funds to financial institutions for investment and loans they make to address climate change: https://www.boj.or.jp/en/announcements/release_2021/k210618a.pdf 

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

About the New Economics Foundation

The New Economics Foundation is a charitable think tank that works with people igniting change from below and combines this with rigorous research to fight for change at the top. We are wholly independent of political parties and committed to being transparent about how we are funded. https://neweconomics.org/ 

About Positive Money

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.

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