Daily ESG Briefing: Bank of England wants to include climate considerations in QE decisions

The latest developments in sustainable finance

The Bank of England wants to consider climate change in its bond purchasing decisions, according to a speech by the central bank’s Executive Director of Markets, Andrew Hauser. “Most of our asset holdings consist of UK government securities. But 2% of the Bank’s Asset Purchase Facility consists of sterling corporate bonds, acquired as part of the MPC’s [Monetary Policy Committee’s] quantitative easing programme,” he told the Investment Association last week. “The framework for the MPC’s asset purchases is determined by the Committee’s remit given to it by the Chancellor. But, subject to the Government indicating a willingness to update this remit, we will over the coming year be considering how to incorporate climate factors into decisions on the mix of financial assets, whilst still achieving our policy aims. We will have much to learn from the range of approaches already adopted in the private sector.”  The full speech, from hot air to cold hard facts: how financial markets are finally getting a grip on how to price climate risk and return – and what needs to happen next is available here.

The International Securities Lending Association is launching three new steering groups – two of which will consider ESG topics. The body’s Regulatory Steering Group will include discussion of regulatory developments relating to ESG, the Shareholders Rights Directive and tax issues, among others. “This group is especially relevant for members that work in compliance or advocacy departments,” ISLA said in a statement. “And for the first meeting will include all members of the existing related groups or subgroups.” Another new group, the  Market Practice Steering Group, will also address ESG and “is especially relevant for operations and front office staff”.

CDP Partnerships has launched a Diversity & Equity Initiative. The environmental disclosure charity, which is based in the UK, will help connect disclosing companies with services to further their sustainability and provide access to a diverse network of providers. It will offer discounts and flexible payments to minority- and women-owned businesses and enterprises as part of the efforts. 

The Climate Bonds Initiative has updated the rules for inclusion in its Green Bond Database so that 100% of a deal’s net proceeds must finance green assets, projects, and activities.  The overhauled methodology also states that the EU taxonomy may be used as a point of reference, and eligible expenditures now include R&D. There are also clearer rules on Adaptation and Resilience categories. The NGO will be launching a Social and Sustainability Bond database this quarter.

Less than half of asset managers assess gender diversity as part of their investment analysis, two-thirds have less than 25% female representation on their investment teams and 60% did not report their gender pay gap in 2019, according to research by Redington. The findings come despite the investment consultant reporting that 77% of asset managers measure gender diversity internally and 58% say it’s an important contributor to their success. The research comes from a survey of more than 100 managers based around the world, representing over $10trn of assets under management.

Impact investing risks being marred by “subpar measurement and reporting, leaving investors disenchanted with asset managers’ overly positive claims”, according to a blog by Brunno Maradei, Global Head of Responsible Investment at Aegon Asset Management. “Impact investing is an exciting field, and investors can indeed have a significant positive impact on the key global sustainability challenges. But don’t expect silver bullets and be wary of overly positive reporting,” he warned. 

The Principles for Responsible Investment has published a note advising investors on their role in moving the EU to Net Zero by 2050. Among other things, Delivering Net Zero Emissions in the European Union, warns that “as policy drives a shift from conventional to zero-carbon manufacturing, investment in conventional carbon-intensive manufacturing facilities, such as a coal-fired steel plant, will expose investors to risks repricing or early retirement of carbon-intensive assets”.