On Tuesday, we wrote about how the era of central bank convergence was over. In Wednesday’s UK budget, came a perfect example of how monetary authorities are increasingly reflecting different goals.
Rishi Sunak, the UK’s PR stunt specialist chancellor, announced the Bank of England’s mandate would change to reflect the country’s commitment to combating climate change. Under the new mandate, the Bank’s actions will, in the words of Governor Andrew Bailey, “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.”
This change will have a material effect on policy as the Bank will divest itself of purchases of corporate bonds issued by big polluters made under its quantitative easing programme. From the Bank:
About £20bn, of the £895bn QE announced by the BoE’s Monetary Policy Committee up until November 2020 (of which £150bn remains to be completed), is in corporate bonds.
As the corporate bond purchases are made in proportion to economic activity (excluding financial activity), the portfolio’s carbon footprint broadly reflects that of the sterling bonds eligible for QE.
Here’s a breakdown — from the BoE’s most recent environmental disclosures — of emissions of issuers by weighted average carbon intensity, or WACI, scope. Under this schema, ‘Scope 1’ is a corporate’s direct emissions; ‘Scope 2’, emissions associated with the energy it has purchased; and ‘Scope 3’ all other indirect emissions:
And here is a breakdown by industry:
The Bank, under Mark Carney’s stewardship, was one of the most forward thinking in terms of its attempts to green the financial system. As governor, Carney — who is both banned from Pontin’s and works as a UN special envoy for climate action — was speaking out on the negative externalities of financing activities that pollute the planet as early as in 2015.
The move today cements (though not with actual cement, we might add) Threadneedle Street’s place as a pioneer in placing climate at the heart of all of its activities.