MPs have urged the Bank of England to stop buying bonds issued by fossil fuel companies.
Parliament’s Environmental Audit Committee (EAC) has written to Andrew Bailey, governor of the Bank of England, urging him to align the Bank’s corporate bond buying programme with the goals of the Paris climate agreement.
“The Bank’s corporate bond purchases are currently aligned with a catastrophic 3.5°C temperature rise by 2100 – far exceeding the Paris Agreement goal of limiting global warming to 1.5 °C,” said Philip Dunne MP, chair of the EAC.
The Bank of England buys corporate bonds to lower borrowing costs for UK companies and has committed £20bn ($27bn) to the programme. The central bank does not disclose which specific bonds it buys but it is understood to be a broad cross-section of the UK economy.
Dunne said the Bank of England risked creating “moral hazard” by buying fossil fuel bonds without any conditions attached.
The committee also called on the central bank to force businesses borrowing under the state-backed Covid Corporate Financing Facility (CCFF) to publish climate-related financial disclosures.
“We are calling on the Bank to show leadership, once again on climate change, in the year the UK hosts COP26, by ensuring its actions to promote recovery also reduce the UK’s exposure to climate change risk,” Dunne said.
Last year the Bank of England published the first ever analysis of its carbon footprint. It found the central bank’s investment holdings were consistent with contributing 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. Campaigners said the Bank of England should “put its money where its mouth is” at the time.
“[The Bank of England] has a moral responsibility to align its corporate bond purchasing programme with the goals of Paris Agreement; and it should require companies receiving millions of pounds of taxpayers’ money to publish climate-related financial disclosures,” Dunne, a Conservative MP, said.
Fran Boait, executive director of Positive Money, a research and campaign group which gave evidence to the EAC, said: “As the public institution overseeing and underpinning our financial system, the actions of our central bank have a key role to play in ensuring a green COVID recovery.”
A spokesperson for the Bank of England said climate change was a “strategic priority” and promised a full response to the EAC “in due course.”
“We have an ambitious work programme on climate change, from the stress testing of the largest UK banks and insurers against climate-related financial risks through to working internationally with the central bank network for greening the financial system – a network of which we were a founding member,” a spokesperson said.
“Work to consider how best to take account of climate considerations in our corporate bond portfolio is already underway at the Bank.”
In December, Bailey said: “It’s not a matter of drawing a binary divide and saying you’re good and you’re bad, you’re saved and you're damned. It’s a matter of incentivising the change we want to see. But that’s obviously complex — we’ve got to get the right incentives.”
The central bank has been the target of climate campaigners who have called for the same changes Dunne is seeking. The Yes Men, a group of New York-based activists, created a spoof website and fake press release last month claiming the bank was about to stop buying bonds issued by oil and gas companies.
While the Bank of England has been targeted for not doing enough, executives at the bank argue it is doing more than other central banks around the world. As well as disclosing its own carbon footprint, the central bank has announced plans for climate-based stress testing of the firms it supervises.
“It’s more important than ever that the Bank of England gets its house in order, especially with all eyes on the UK ahead of the COP26 climate summit,” said Boait.
COP26, a UN climate summit, will be held in Glasgow in November.
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