Bank of England seeks to incorporate climate risk into bond purchases

On Friday, the Executive Director for Markets at the Bank of England, Andrew Hauser, announced the central bank’s intention to seek Treasury backing for incorporating climate risk into its asset purchasing methodology over the coming year.

In a speech to the Investment Association, Mr Hauser said:

“2% of the Bank’s Asset Purchase Facility consists of sterling corporate bonds, acquired as part of the MPC’s quantitative easing programme. As we stated in our TCFD disclosure, the framework for the MPC’s asset purchases is determined by the Committee’s remit given to it by the Chancellor. But, subject to the Government indicating a willingness to update this remit, we will over the coming year be considering how to incorporate climate factors into decisions on the mix of financial assets, whilst still achieving our policy aims.”

This move follows a similar approach taken by ECB President, Christine Lagarde, just two days earlier, and the Chancellor is now being urged by climate campaigners to align the bank’s Quantitative Easing programme with the government’s own climate commitments, alongside the next budget.

Having been slow off the mark, today’s move represents the first statement of intent since Andrew Bailey pledged to make the decarbonisation of corporate bond purchases ‘a priority’ back in March. Since then, in April, fossil fuel-producing companies featured in the updated list of eligible bonds for further rounds of corporate QE.

In June, the premier Bank of England climate-related financial disclosure showed that if the projected emissions performance of the Bank’s corporate bond portfolio was representative of the emissions performance of corporates globally, the world would experience 3.5 degrees celcius of heating by 2100.

The bad year suffered by fossil fuel giants looks set to get even tougher, between the BoE’s new strategy proposal, and pressure from campaigners for the bank to stop including BP and Shell in its bond-buying programme.

Speaking on the update, Executive Director of Positive Money, Fran Boait, said:

“It’s positive to hear the Bank of England is finally taking forward proposals to ensure its asset purchases aren’t fuelling the climate crisis, though progress seems worryingly slow. The Bank says it will consider incorporating climate over the coming year, more than six months since Andrew Bailey told MPs he would make it a priority in March.”

“Action needs to happen more urgently, especially with the prospect of more corporate quantitative easing as the Bank of England responds to the worsening economic outlook. The Bank’s own disclosure suggests its corporate bond purchases are currently fuelling 3.5C global heating, more than double the 1.5C limit the government is committed to pursuing through the Paris Agreement.”

“The Bank of England and the Treasury should work to ensure the central bank’s remit is updated to allow it to support the government’s net zero strategy by the next Budget.”

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.