"Central banks have the power to make or break the government’s climate commitments, with the ability to realign billions of pounds away from fossil fuels and towards green alternatives."
Rishi Sunak announced a change to the Bank of England’s mandate in yesterday's Budget, for the first time instructing the UK’s central bank to align its monetary policy toolkit with the government’s net zero target.
In his Budget speech, Sunak announced a new mandate for the Bank of England that would “reflect the importance of environmental sustainability and the transition to net zero”.
In the Remit and Recommendations letters sent by the Chancellor to Bank of England governor Andrew Bailey, he states that he is “today updating the MPC’s remit to reflect the government’s economic strategy for achieving strong, sustainable and balanced growth that is also environmentally sustainable and consistent with the transition to a net zero economy.”
Changes to the government’s economic objectives outlined in the remit mean that the Bank’s monetary policy operations must support the government’s strategy of: “structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy, including through regulation, and an ambitious programme of investment in skills, infrastructure and innovation, in order to sustain high employment, raise productivity and improve living standards”.
Experts and campaigners hope the reform will translate to key changes to Bank of England policies, such as excluding fossil fuel assets from the Bank of England’s £20bn corporate bond purchase scheme, and shifting the overall carbon intensity of the portfolio away from 3.5C degrees and towards the 1.5C target of the Paris Agreement.
The change comes after 125 experts wrote to the Chancellor in November urging him to green the Bank of England’s mandate, to enable such changes to the Bank’s policies. Groups including Positive Money, 350 and SumOfUs last week put further pressure on the Chancellor to update the Bank’s mandate, delivering a petition signed by 65,000 people echoing these demands.
Simon Youel, head of policy and advocacy at Positive Money, said: “Central banks have the power to make or break the government’s climate commitments, with the ability to realign billions of pounds away from fossil fuels and towards green alternatives. As the institution underpinning the UK’s money and banking system, the Bank of England leading by example and shifting its own policies away from 3.5C global heating and towards net zero will reverberate across financial markets and the wider economy.
“With this green light from the Treasury, the Bank of England must now act quickly to turn words into action ahead of this November’s crucial COP26 climate summit in Glasgow. If the UK is to show leadership on green finance, this mandate change should at a minimum mean the Bank dumping risky fossil fuels from its corporate quantitative easing programme and aligning it with the Paris Agreement, refusing high-carbon assets as collateral, and shifting funds towards green job-creating projects.”
Anna Vickerstaff, campaigner at 350.org, said: “Today’s change of mandate is good news for the climate, and a victory for the 65,000 members of the public who called for this to happen. More and more people are waking up to the role the Bank of England plays in the climate crisis, and will continue to push for the Bank to cut off flows to destructive, polluting industries, and increase support for sectors that nourish our society, economy and climate."