Rishi Sunak has today made a highly anticipated and important change to the Bank of England’s mandate, for the first time instructing the UK’s central bank to align its powerful 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 the Bank of England governor Andrew Bailey this afternoon, 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 to: “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” (new text in bold).
Experts and campaigners hope this mandate reform will translate to key changes to Bank of England policies, such as:
- Ending support for the dirtiest sectors of the economy through the Bank of England’s monetary policy operations, by:
- Excluding fossil fuel assets from the Bank of England’s £20bn corporate bond purchase scheme (or ‘corporate quantitative easing’), which involves the Bank buying up debt issued by the likes of Shell and BP, and shifting the overall carbon intensity of the portfolio away from 3.5C degrees and towards the 1.5C target of the Paris Agreement
- Greening the collateral framework, i.e. the assets the Bank of England accepts as collateral for its lending
- Unleashing more funding for green alternatives, by:
- Working with the Treasury so that the Bank of England’s money creation powers support investment in sustainable job-creating projects, for instance by reinvesting funds into the new National Infrastructure Bank
- Making further changes to the cheap funding offered by the Term Funding Scheme so that it incentivises green lending for SMEs
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 financial flows 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, UK campaigner, 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.”
Sources:
- The full remit & recommendations letter for the Bank of England’s Monetary Policy Remit can be viewed here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/965782/2021_MPC_remit_FINAL_1_March_.pdf
- More details of the 65,000 signature petition delivered by Positive Money, Sumofus and 350.org: https://positivemoney.org/2021/02/sunak-urged-to-stop-bankers-fuelling-climate-crisis-in-budget/
- More details of the Environmental Audit Committee’s recommendations on the mandate change here: https://positivemoney.org/2021/02/cross-party-report-urges-green-recovery-from-covid/
- More details of the November open letter signed by 125 experts here: https://positivemoney.org/2021/02/cross-party-report-urges-green-recovery-from-covid/ As covered in The Guardian here: https://www.theguardian.com/business/2020/nov/16/bank-of-england-needs-more-powers-to-decarbonise-economy-say-experts
- Positive Money and SumOfUs crowdfunded a front page advert in Rishi Sunak’s local paper calling on him to stop bankers flooding Britain: https://positivemoney.org/2021/02/surprise-for-sunak-60000-demand-climate-action-on-frontpage-of-his-local-paper/
- The Bank of England’s own climate disclosure in 2020 found that its corporate bond purchases were aligned with global temperature rises of 3.5c by the end of the century: https://www.bankofengland.co.uk/-/media/boe/files/annual-report/2020/climate-related-financial-disclosure-report-2019-20.pdf?la=en&hash=5DA959C54540287A2E90C823807E089055E6721B
- Positive Money campaigns for a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters. www.positivemoney.org
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