By Simon Jessop and Huw Jones
LONDON – UK lawmakers on Thursday called on the Bank of England to help tackle climate change by boosting investment in green finance and penalising banks that finance the fossil fuel industry.
The intervention by a cross-party group of 51 lawmakers comes ahead of the COP26 global climate talks to be held in Glasgow, Scotland, in November and follows a recent expansion of the BoE’s remit to ensure it helps meet the government’s own climate goals.
In a letter to BoE Governor Andrew Bailey seen by Reuters, the group said he needed to do more, as the financial sector it regulates is underpricing climate-related risk, and not enough money was being spent on green finance.
“We support the Bank operationalising its new climate and environmental remits in a manner commensurate with the scale and urgency of the challenges we are facing,” the letter said.
“With the right policy decisions, the Bank can play an instrumental role in mobilising and steering private finance to help deliver the government’s goals, incentivising job creation and encouraging essential investments in green infrastructure.”
Specifically, the group said the BoE could bolster green lending by providing cheaper credit to banks conditional on them lending more to sustainable projects, including those run by small and medium-sized businesses.
The BoE should also introduce measures to ensure the higher risk of the lending to the fossil fuel sector is reflected in regulation, and push for the financial system globally to be aligned with climate goals.
BoE Deputy Governor Sam Woods said in July there is no evidence yet to force banks to hold more capital to cover risks from climate change.
Banks have already faced protests over their financing of polluting industries such as mining, but Woods said it would be “overreach” for the BoE to penalise the flow of finance towards carbon-heavy industry.
The BoE is conducting its first climate-related stress test of the main firms it regulates, but it has said the outcome will not have a direct impact on capital requirements, unlike its routine stress tests.