23 June 2021
As of March 2021, the Bank of England not only has a duty to incorporate environmental considerations into its policymaking, but the mandate to do so. With this updated remit from the Chancellor to support the government’s net-zero plans, the Bank of England could facilitate the UK’s transition into a world leader on green finance ahead of COP26, while also supporting small businesses and creating green jobs across the country.
This report, ‘Greening Finance to Build Back Better: A UK Roadmap Ahead of COP26’, was co-created with research group the New Economics Foundation (NEF) to demonstrate how the Treasury and the Bank of England could lead the way ahead of this year’s climate summit in Glasgow while ‘building back better’ from Covid.
Currently, Britain’s financial system is not 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. Private banks are likewise lagging in the divestment from fossil fuels, with UK banks Barclays and HSBC alone pouring more than £185 billion into them since 2016.
But the report outlines how these 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. It 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