ESG Briefing: New Bank of England Governor to discuss greening QE programme

The latest developments in sustainable finance

Incoming Bank of England Governor, Andrew Bailey, will discuss the decarbonisation of the bank’s quantitative easing programme with the UK Treasury, he confirmed today in response to a question from MP Julie Marsden. Greening the central bank’s bond purchasing programme – originally designed to mimic the broader corporate bond market – would have to be agreed at the Treasury, Bailey warned, but said discussing the issue was a “perfectly sensible thing to do”. He said: “I don’t think Mark [Carney] would disagree with any of this – it’s been on the list of things to do.” Excluding fossil fuels from the bank’s bond purchases and collateral framework was one of three recommendations made to Bailey last week in an open letter from a host of big names in finance, politics and academia, including the likes of Aviva’s Steve Waygood, Carbon Tracker’s Mark Campanale, and former Greek finance minister Yanis Varoufakis. The letter also urged the central bank to work with the government to put climate-related disclosures on a mandatory footing, and to adjust the Bank’s macroprudential framework, so that “the risks associated with high-carbon loans are more accurately reflected in the amount of capital banks hold against them”. The letter was also signed by representatives from the Climate Disclosure Standards Board, CDP, Triodos Bank UK, ShareAction and Boston Common Asset Management.

UK fund management trade body the Investment Association will track UK companies’ progress on TCFD reporting through its Institutional Voting Information Service (IVIS), it has announced. The body, whose 250 members represent £7.7trn in assets, and own one third of the FTSE, said it wanted to see companies disclosing on their climate risk measurement and management before 2022, so that asset managers can “make better informed decisions”. IVIS will introduce a new TCFD-inspired section to its ESG report to highlight to investors whether companies are making climate-related disclosures. The service will not introduce a “colour top” warning rating for these disclosures in 2020, though the IA did not rule it out for future iterations of the report. This year, for the first time, IVIS will give a ‘red-top’, its highest warning level, to companies which have 20% or less gender diversity in their senior leadership teams, in addition to their boards.

Standard Bank is to manage its thermal coal exposure in line with the national energy plan and energy mix of the countries it operates in “where practicable”, it has said in its updated coal policy. It said its financing of thermal coal mining “is expected to reduce over time in line with the expected reduction in the contribution of thermal coal to the energy mix of the countries within which we operate…as countries implement their Nationally Determined Contributions to reducing GHG emissions as per the Paris Agreement.”

Pension heavyweights GPIF, CALSTRS and USS have teamed up to attack the “short-termism” of asset managers and companies in a joint letter published this week. The letter, published on the asset owners’ websites on Wednesday, said they preferred to build and maintain relationships with asset managers that demonstrate commitment to long-term value creation by fully integrating ESG, and engaging and voting transparently and in line with mandates. The three funds, located in Japan, California and the UK, respectively, warned that focusing on short-term returns carried a “potentially catastrophic systemic risks”, citing a Moody’s Analytics report suggesting climate change could destroy around $69trn in global economic wealth over the next 80 years. They also hit out against ESG sceptics, who they said are “quickly becoming the minority” and “should be aware that evidence is not on their side”. 

French public sector pension scheme ERAFP has joined the UN- and PRI-convened Net Zero Asset Owner Alliance in a move the fund says “formalises its commitment to the decarbonisation of its portfolio”. Members of the alliance sign up to a 2050 deadline for reaching carbon neutrality of their investment portfolios in a bid to help limit global warming in line with the Paris agreement. The Alliance founded last year by Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec (CDPQ), Folksam Group, PensionDanmark, SwissRe, Alecta, AMF, CalPERS, Nordea Life and Pension, Storebrand, and Zurich.