Bank of England bonds must help reverse climate change
THE Bank of England risks creating a “moral hazard” if it continues to buy bonds from companies with high emissions, MPs have warned.
It has funnelled billions to save firms during the pandemic, potentially protecting thousands of jobs – but the companies include heavy-polluting airlines and chemicals giants.
Philip Dunne, who chairs the Environmental Audit Committee, wrote to Bank Governor Andrew Bailey and said its rapid response to Covid-19 was “admirable”.
But he warned that the central bank’s actions were not lining up with global ambitions to limit climate change to 1.5C, as in the
Paris Agreement, or the
UK’s hopes to slash its emissions to “net zero” by 2050.
Mr Dunne’s letter said: “The Bank is at risk of creating a moral hazard by purchasing high-carbon bonds and providing finance to companies in high-carbon sectors without placing any conditions to make a transition to net zero.”
He added that if the Bank does not align its corporate bond purchases with Paris, the UK’s diplomatic leadership on climate change could be undermined before the UN climate conference in Glasgow this November.
He called on the Bank to require companies getting taxpayer support through the Covid Corporate Financing Facility to publish climaterelated financial disclosures.
The central bank said “work to consider how best to take account of climate considerations in our corporate bond portfolio is already under way” and that climate change is a “strategic priority”.
It added: “We have an ambitious work programme on climate change, from the stress testing of the largest UK banks and insurers against climaterelated 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.”
After sending the letter, Mr Dunne said: “We are at a crunch point, not only to mitigate the effects of climate change, but to rescue vast swathes of the economy from the impacts of successive lockdowns due to coronavirus.
“It makes sense to tackle both together, offering a ‘reset button’ to design an economy fit for net-zero Britain. The Bank’s corporate bond purchases are currently aligned with a catastrophic 3.5C temperature rise by 2100 – far exceeding the Paris Agreement goal.”
Net-zero means balancing carbon emissions with removal.