Government tells Bank of England to join climate change battle and support ‘environmentally sustainable’ growth
The Bank of England will use its bond-buying powers to help tackle climate change after the Government ordered it to support ‘environmentally sustainable’ growth.
Chancellor Rishi Sunak yesterday revealed he had given the instruction to Threadneedle Street in an updated policy remit.
This says the Bank must still seek to keep inflation below 2 per cent – but adds that it must also take account of plans to transition the UK to a zero-carbon economy by 2050.
The Bank of England has been told it must seek to keep inflation below 2 per cent while taking account of plans to transition the UK to a zero-carbon economy by 2050
In response, the Bank said it would now change its approach to buying corporate bonds ‘to account for the climate impact of the issuers of the bonds we hold’, in a sign that it will now take into account how environmentally friendly businesses are.
The UK is set to issue green savings bonds for the first time later this year, with proceeds ploughed into projects dedicated to speeding up the switch to a zero-carbon economy.
Delivering his Budget yesterday, Chancellor Rishi Sunak said the shake-up was part of plans to make the City a global hub for green finance.
He added: ‘Underpinning all of this will be an updated monetary policy remit for the Bank of England. It reaffirms their 2 per cent target.
But now, it will also reflect the importance of environmental sustainability and the transition to net zero.’
In a letter to Bank Governor Andrew Bailey, Sunak said: ‘As the world recovers from the pandemic, we also face a tipping point for our climate.
‘The shift to a world where we are at net zero will mean systemic changes across all parts of our economy.
This includes delivering a financial system which supports and enables the transition to an environmentally sustainable net zero economy.’
The central bank said it would adopt the changes for its next round of investment in the fourth quarter of 2021.
In a statement, it added: ‘The Bank welcomes the MPC remit published today, which clarifies that the economic strategy of the Government includes supporting the transition to a net zero emissions economy.
‘In the coming months we will provide more information about our proposed approach to adjusting the Corporate Bond Purchase Scheme to account for the climate impact of the issuers of the bonds we hold.’
The Bank has already been looking at new ways to measure the impact of climate change, including stress tests that would look at how exposed financial firms are to rising global temperatures.
Yesterday, green lobbyists welcomed the changes but said the Government and the Bank were moving too slowly.