In a major step forward in ending fossil fuel financing, the Bank of England has been given a new mandate to support the government’s net-zero carbon strategy. As a result, the Bank will need to realign its monetary policies away from fossil fuels and towards investment in sustainable industries.
In last week’s budget, chancellor Rishi Sunak announced the change to the Bank’s remit, saying it would “reflect the importance of environmental sustainability and the transition to net zero”. Until now, the UK’s central bank has had no specific requirement to support moving to a low-carbon economy, and so has been biased towards supporting high-carbon industries, particularly fossil fuels.
As one of the most powerful institutions in the UK, changes implemented by the Bank will ripple out across the finance sector and the wider economy. It will also increase pressure on corporate banks like HSBC and Barclays to make radical improvements to their own lack-lustre net-zero plans.
When Andrew Bailey became governor last year, he talked about making sustainable finance a priority for the Bank. But since then, there’s been little evidence of this actually happening. For instance, billions ended up in the hands of Shell and BP as part of the Bank’s Covid-19 corporate bailout scheme.
Over the past few years, pressure on the Bank to clean up its policies has increased. More recently, Positive Money, 350.org and SumOfUs spearheaded a campaign demanding that Sunak use his authority to update the Bank’s mandate. Despite controversies about other aspects of the budget, this is one part of it that is definitely worth celebrating.
Hopefully, the effect of this big change will be that fossil fuels are excluded from the Bank’s corporate bond purchasing scheme and there’s an end to high carbon assets being used as collateral. In addition, support for sustainable industries would be great, such as investment in green jobs and providing incentives for investment in sustainable SMEs.