BoE green criteria for buying assets at risk of losing targets – monetary policy

The Bank of England’s ambitious green debt purchase program can only have a “hidden effect” on reducing emissions of polluting gases. This conclusion comes from a study by New Economics, which warned that the British program to buy “green bonds” may exclude environmentally responsible companies.

The UK’s green finance program was announced with pomp and circumstance by Her Majesty’s Treasury, and in its first bond issuance in September, generated record demand of €100 billion. Given the initiative’s success, the Bank of England announced, in November, a “Green” criteria for asset purchase To stimulate the economy, it was the first central bank to do so.

However, the study now published by Niu The Economics Foundation reveals that although the introduction of “green standards” in asset purchases has given a “green tilt” to the stimulus program (so-called “quantitative easing”) of the Bank of England, the effect of this measure on decarbonizing the economy is expected to go “less.” Much more than is needed” to keep global warming below 2°C.

The study’s authors warned that the Bank of England “buys bonds from exactly the same industries as before” and that, paradoxically, in some cases the polluters end up being treated better than the green ones, given their “performance” in the sector.

As an example, the New Economy Foundation notes that the Bank of England is buying up bonds from oil giant BP more quickly, as it is seen in the markets as a “powerful implementer of climate targets”, with the Suez Bonds trimming dedicated to it. Water and waste treatment, which has the lowest weight in the sector.

The results are lower than the Bank of England’s expectations

The study also notes that based on the Bank of England’s current plans, the weighted average carbon intensity of the Bank of England’s portfolio is expected to fall by 7% this year, a number “very far” from the 25% target the central bank established for 2025. .

“The climate emergency cannot be addressed with economic policies that simply touch the surface,” the study authors say, noting that, with encouragement from the Bank of England, few companies will focus on achieving net zero emissions until 2050.

Instead, they suggest that the Bank of England needs to go ahead and assert that excluding big polluters from its asset purchase program would reduce the proportion of carbon-intensive bonds from 54% to 48% and, in a more ambitious scenario, to 36%. This will allow the Bank of England to reach the 2025 target three years in advance.