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Bank of England puts climate at heart of bonds plan in green push

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·Contributor
·3-min read
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Although the BoE will not immediately sell-off bonds issued by businesses that have high carbon emissions, such firms will have a mandatory requirement to disclose emissions and or risk no longer being eligible for bond purchases. Photo: Dan Kitwood/Getty Images
Although the BoE will not immediately sell-off bonds issued by businesses that have high carbon emissions, such firms will have a mandatory requirement to disclose emissions and or risk no longer being eligible for bond purchases. Photo: Dan Kitwood/Getty Images

The Bank of England (BoE) has unveiled plans to make its corporate bond purchase scheme (CBPS) more 'green' as the UK government aims to achieve net zero carbon emissions by 2050.

In a speech hosted by Bloomberg on Friday, Andrew Hauser, the BoE’s markets executive director, said that the bank would set targets for the overall emissions of its holdings, as well as investing in green corporate bonds when they are available.

Although the BoE will not immediately sell-off bonds issued by businesses that have high carbon emissions, such firms will have a mandatory requirement to disclose emissions and must set out a roadmap to reduce them, or risk no longer being eligible for bond purchases.

“Today marks the start of an intensive period of learning,” Hauser said. “Reducing global CO2 emissions won’t happen easily or on its own.”

"Divestment is a powerful tool, and should remain squarely in the toolkit. But it should be used as a credible threat to reinforce incentives, not an indiscriminate 'quick fix'," he said.

Hauser, who is responsible for managing the Bank of England's balance sheet and managing the UK’s official foreign exchange reserves on behalf of HM Treasury, added: "The precise calibration of this approach will be developed in the coming months.

Watch: Rate of inflation more than doubles in just one month to 1.5%

Read more: Bank of England told to 'put its money where its mouth is' on climate change

As well as setting targets and exploring eligibility, the bank is also proposing tilting for greening the CBPS. This includes rebalancing bond purchases towards issuers with stronger climate performance.

It will also look at ways to combine forward and backward looking indicators via a scorecard approach.

It comes as the central bank doubled its corporate bond holdings to an all-time high during the coronavirus pandemic last year.

The Bank of England invests £20bn in corporate debt as part of its £895bn asset purchase facility. Threadneedle Street does not disclose what corporate bonds it buys but campaigners have long suspected it buys debt issued by polluting companies in the oil and gas sector.

Bonds recently classed as eligible for purchase include those of energy giant BP (BP.L) and mining company Rio Tinto (RIO.L).

Read more: Bank of England's Bailey denies backsliding on climate crisis

Greening the Bank's bond portfolio is seen as a positive step by campaign groups but more action is sought. Pressure group Positive Money is calling for the Bank of England to force all banks to draw up net zero plans and penalise them for lending to polluting companies, among other things.

Positive Money ranked the Bank of England fourth out of G20 central banks for green policy last year, but still scored Threadneedle Street D+ in its framework, highlighting the slow pace of the entire central banking system in getting to grips with the problem.

The plans come after UK chancellor Rishi Sunak announced a change to the bank's mandate in March, requiring it to include climate and environmental goals in monetary policy.

The finance minister made the change to reflect the importance of environmental sustainability, he said at the time.

Last year, the Bank of England said its investment portfolio was set to contribute to an average global temperature increase of 3.5°C by the end of the century — well above the 2°C warming limit agreed by world leaders at the 2015 UN Paris climate summit.

Watch: Bank of England says UK to recover from COVID by end of year

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