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Climate change should be placed “front and centre” of the central bank’s mandate to boost green investment

July 12, 2018

A Green Bank of England, Central Banking for a Low-Carbon Economy

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Delphine Strauss (Financial Times) summarises advice in this report (link to pdf above) from the campaign group Positive Money.

It recommends that climate change be placed “front and centre” of the Bank of England’s mandate so that the central bank can boost green investment.

The report has won backing from Lord Deben, who chairs the independent Committee on Climate Change which was set up by the government to monitor the UK’s progress in meeting its statutory targets for cutting emissions:

“They are right to seek some radical measures, because the issues are radical. I think that monetary policy does need to reflect these risks”, he said, adding that central banks should do more to ensure the availability of green finance and divest from fossil fuel companies that showed no inclination to change their business.

The BoE has been reviewing UK insurers and banks’ exposure to climate-related risks and supports efforts to develop international standards for voluntary disclosure.

Mark Carney, the BoE’s governor, has repeatedly warned of the physical damage climate change could wreak on the economy and the risks to financial stability that might result from a sudden revaluation of carbon-intensive assets.

Positive Money argued that this concern for financial stability will look “incoherent” unless the BoE does more to boost investment in the transition to a low-carbon economy. Its report urged the government to rewrite the mandate of the Monetary Policy Committee to include green objectives explicitly and called on the BoE to look at ways to build climate-related risks into its macroeconomic models.

The Positive Money report urges the BoE to set an example:

  • by disclosing the carbon risks of assets on its own balance sheet
  • by ending the practice of buying bonds issued by fossil fuel companies
  • and by financing green projects via quantitative easing during any recession.

It argued that the BoE has unintentionally promoted high-carbon sectors because its criteria for asset purchases favoured the bonds of large fossil fuel companies.

 

 

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