EAC warns Bank of England to avoid ‘moral hazard’ from high-carbon bond purchases

The Environmental Audit Committee says the bank’s corporate bond purchases are currently aligned with a ‘catastrophic’ 3.5°C temperature rise by 2100

The Environmental Audit Committee (EAC) has warned the Bank of England that it risks creating a ‘moral hazard’ by purchasing high-carbon bonds and providing unconditional funds to carbon-intensive companies.

The EAC estimates 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.

In a letter sent to the Governor of the Bank of England Andrew Bailey, the EAC mentioned if the bank failed to ensure its bond programme is in line with the Paris Agreement, that could undermine the country’s diplomatic leadership ahead of hosting COP26 in November.

The EAC also suggests the bank should require large companies receiving millions of pounds of support through its Covid Corporate Financing Facility (CCFF) to publish climate-related financial disclosures.

These disclosures should be in line with the recommendations of the International Taskforce on Climate-related Disclosures and the government’s Green Finance Strategy.

Environmental Audit Committee Chairman, Rt Hon Philip Dunne MP, 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.

“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.

“I have written to the Governor of the Bank of England encouraging the bank to take two further steps in supporting the green recovery. It has a moral responsibility to align its corporate bond purchasing programme with the goals of the Paris Agreement, and it should require companies receiving millions of pounds of taxpayers’ money to publish climate-related financial disclosures.”

The Bank of England said: “The Bank will respond in full to the Environmental Audit Committee letter in due course.

 “Climate change is a strategic priority for the Bank. 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.

 “As the Governor told the Treasury Select Committee in November, work to consider how best to take account of climate considerations in our corporate bond portfolio is already underway at the Bank.

 “The CCFF scheme closed to new applications on 31st December, and will close to new borrowing in March – with all borrowings due for repayment by March 2022.”

 

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