Green credentials to colour Bank’s choices

THE Bank of England is to focus its corporate bond-buying programme on companies that embrace the Government’s green agenda, despite warnings that the drive for net zero risks harming its independence.

Threadneedle Street’s purchases of company debt will be “tilted” towards top climate performers under a new set of rules, helping to drive down the cost of borrowing for firms reducing their emissions and targeting further cuts.

The Bank said the green performance of companies will be measured by their progress in reducing greenhouse gases, their climate targets, their “emission intensity” and whether it has published the risks they face from climate change.

Its proposals will alarm critics who fear that the Bank is drifting towards becoming a tool of Whitehall policymakers eager to use its £20bn corporate debt portfolio to influence the business world.

Baron King of Lothbury, the former Bank governor, warned in March that a focus on green companies will mean the Bank becomes the “arbiter of credit allocation”, favouring certain businesses over others.

He said that the green moves risk being “the first steps on the slippery slope to undermining the independence of the Bank”.

Under its quantitative easing (QE) programme, the Bank has purchased £875bn of government bonds and £20bn of corporate debt to help prop up the economy during the Covid crisis. The measures were initially intended to shore up the economy, but are increas- ingly becoming a tool with which to change businesses’ behaviour.

The Bank wants to reduce its exposure to carbon-intensive firms in its corporate bond portfolio by a quarter by 2025 and reach net zero by 2050.

Paul Fisher, a former Bank rate-setter, said the actual changes in the Bank’s balance sheet of bonds will be “way too small to have an impact”, but the move will help “develop market standards”. He added: “There’s no shortage of demand. What we’ve got is a shortage of supply of assets.”

Governor Andrew Bailey said shifting companies’ behaviour is “more powerful” than ditching investments of the worst climate offenders.