New green mandate for the Bank of England

March 4, 2021|Written by |Bank of England

The Bank of England’s (BoE) mandate has been updated to bring its operations in line with the UK government’s net-zero carbon strategy. Chancellor Rishi Sunak has updated the Bank’s mandate to “reflect the importance of environmental sustainability and the transition to net zero”.

The announcement, formally expressed in letters to the bank’s Monetary Policy Committee and Financial Policy Committee, will allow the bank to add climate and sustainability criteria to its corporate bond purchases and other monetary policy operations. BoE Governor Andrew Bailey has previously called changing the mandate in this way “perfectly sensible”.

The expansion of the Bank’s mandate follows a three-year campaign by climate experts, advocacy groups and activists. This included protests, a hoax website, a petition, an open letter signed by 125 academics and experts and a front-page advertisement in the local newspaper of Sunak’s parliamentary constituency.

The UK government’s Environmental Audit Select Committee has also called repeatedly for the move, saying that the Bank was “at risk of creating a moral hazard by purchasing high-carbon bonds and providing finance to companies in high-carbon sectors”.

The first measure taken by the BoE under its updated mandate will likely be an adjustment to the Bank’s Corporate Bond Purchase Scheme to account for climate impacts later this year. However, campaigners say that the effect of this measure will depend on how the BoE defines ‘polluting’, calling for companies with fossil fuel expansion plans to be immediately excluded. They also warn about the use of carbon intensity as a measure of climate progress, demanding instead a trajectory of absolute emission reductions.

In response to the Treasury announcement, the SUERF network of central bankers, financial industry representatives and academics released a policy note outlining ways in which the Bank can use its new mandate to decarbonise its operations.

This comprehensive proposal covers institutional architecture, green monetary policy, banking regulation and the decarbonisation of shadow banking. The paper also recommends aligning collateral haircuts, refinancing operations and capital requirements to climate impact and exposure to high-carbon sectors.

However a rapid low-carbon transition will not take place using purely market-oriented measures, the paper warns. Instead, it proposes a more interventionist and precautionary perspective, and the use of all policy tools to avoid a climate breakdown.

This page was last updated April 23, 2021

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