Politicians accuse Bank of England of contradictory climate strategy

‘Align with TCFD guidelines, stop buying fossil-fuel bonds and change mandate’, says new report

UK parliamentarians have called on the Bank of England to play a greater role in addressing climate change, as a new report argues there is incoherence between the Bank’s policy on addressing financial climate risks and a monetary policy accused of boosting fossil fuel companies.
Under the leadership of Governor Mark Carney, the Bank of England is well known for driving dialogue around financial risk and climate change. Carney coined the term ‘Tragedy of the Horizons’ in a seminal speech on the topic at Lloyds of London in 2015. Since then, the bank has coordinated the creation of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD), the G20 Sustainable Finance Study Group, and the Central Bank and Supervisors Network for Greening the Financial System, launched in December. The Bank of England itself has been coordinating reviews of the UK’s insurance and banking sectors to establish their exposure to risk from the transition to a low-carbon economy. In a speech published this week by Sarah Breeden, the Bank’s Executive Director of International Banks Supervision, said climate change “presents financial risks which impact the Bank’s objectives”.
“Those risks have the potential to affect the Bank’s core responsibilities both for safety and soundness of the firms we regulate and for the stability of the financial system if there is a late, abrupt and disorderly transition,” she said.
However, while recognising the Bank of England’s efforts as positive, leading UK Parliamentarians including Lord Deben, Chair of the Committee on Climate Change and Barry Gardiner, Shadow Climate Change Minister, yesterday urged the Bank of England to do more, citing a new report , A Green Bank of England, from NGO Positive Money.
The report, released this week at the UK Parliament, argues that the Bank of England’s approach to tackling climate change has too short-term a view, and contains inherent contradictions. For example, while the Bank of England has assessed the exposure of key parts of the UK financial sector to climate risk, research has found that its monetary policy since the financial crisis has unintentionally benefited high-carbon sectors.
The report proposes a number of policies to help ‘green’ the Bank of England.
It calls on the Bank to publish its own green lending guidelines for commercial banks, disclose the climate risk of the assets on its balance sheet and stop buying bonds issued by fossil fuel companies.The Bank of England’s mandate also plays a crucial role, says the report, which argues it be reformed by UK Government to include climate sustainability.
On the TCFD, Breeden said its recommendations were “groundbreaking”, adding that scenario analysis is “absolutely what is required to help investors price medium- and long-term risks” around climate change.
Speaking at the report launch, Gardiner praised Carney for creating the TCFD, but said that the Bank of England was not leading by example by adopting the recommendations itself.
The report’s author, Rob Macquarie, economist at Positive Money, said it was talking with Bank of England staff dealing with climate change risk and had the impression they found their work helpful, but other staff were not pleased to be told to do more.
“There is a cognitive lock when you raise the issue of investment,” said Macquarie. “The message around climate risk is not getting across to monetary policy.”
Breeden also used her speech, which was given in March but only published this week, to point out “that if we are to make our climate goals a reality, significant amounts of equity, bank loan, and bond financing will need to become ‘green’”, but a paper from the London School of Economics entitled The Climate Impact of Quantitative Easing found that recent corporate bond purchases made as part of the European Central Bank and the Bank of England’s Quantitative Easing programmes skew towards high-carbon sectors.
Last month, MEPs from the European Parliament’s Committee on Economic and Monetary Affairs, called on the European Central Bank to assess the climate impact of its QE activities.
Central banks globally are increasingly looking at climate change. The Central Bank and Supervisors Network for Greening the Financial System comprises eight central from across the globe, seeking to help strengthen the global response to the Paris climate accord and help the financial system to become more environmentally sustainable. It held its first meeting last month.
Network member Banque de France, France’s central bank, recently announced the introduction of a responsible investment policy for €20bn of assets managed both for its retirement fund and its internal treasury funds as part of a major commitment by the bank to actively practice RI alongside high-level statements on the financial risks of issues like climate change.

Additional reporting by Sophie Robinson-Tillett