Date published: 01 October 2021
MP Tony Lloyd
A group of multi-party MPs – including Sir Tony Lloyd of Rochdale – called on the Bank of England to align UK finances with the government’s climate targets.
Mr Lloyd joined more than 50 MPs and peers in drafting a letter ahead of the crucial COP26 climate summit to Bank of England Governor Andrew Bailey, recommending the bank to focus more on the green finance and tighten the rules for financing fossil fuels.
The letter comes as the UK prepares to host the COP26 climate conference in Glasgow in November.
In the letter, the signatories recommended that the Bank of England “free up green investment” by “supporting green investment in the real economy by adjusting its lending programs to provide cheaper credit to commercial banks, provided that banks extend their loans for sustainable projects, in particular for small and medium-sized enterprises (SMEs).
The letter also recommends regulating private finance, adding: “UK financial regulators need to ensure that private finance supports, rather than hinders, the government climate and improving targets.
“The Bank of England should work with the Treasury to mandate financial institutions to define credible transition plans aligned with the Paris Agreement. They should also introduce measures to ensure that the high risk of fossil fuel lending is reflected in regulation and push for Paris-aligned financial system regulation internationally. “
Mr Lloyd said: “One of the main priorities for COP26 identified by the UK is funding.
“If the UK is to lead the way in this crucial area, the Bank of England must set clear rules to penalize fossil fuel lending and encourage investment in green jobs and sustainable infrastructure.
“It is right for governments to lead the decarbonization effort, but central banks have an equally important role to play in this direction, and that includes the Bank of England.
“The bank must now initiate these new missions, using the tools and levers at its disposal.
A landmark report by the International Energy Agency in May called for “an end to new investments in fossil fuel infrastructure in order to maximize the chances of achieving net zero targets by 2050,” while A study from the same month – the first of its kind based on publicly disclosed data – of the banks examined found that they were responsible for financing the equivalent of 805 million tonnes of carbon dioxide emissions.
The research – commissioned by Greenpeace and the World Wildlife Federation using 2019 emissions data from company disclosures – found that UK banks and asset managers were funding carbon emissions that were 1.8 times annual net emissions from the UK as a whole, suggesting UK funding should be viewed as a ‘high carbon sector’, such as oil and gas, coal mining, aviation and transport.
The results support calls for the introduction of regulation across the sector to bring it into line with the Paris Agreement targets of 1.5 ° C.
According to the Intergovernmental Panel on Climate Change (IPCC), in order to limit the rise in global temperatures to 1.5 ° C, global emissions must fall by 45% from 2010 levels by 2030 .
However, since the signing of the Paris Agreement in 2015, the world’s 60 largest banks alone have provided £ 2.7 trillion ($ 3.8 trillion) to the fossil fuel industry.
UK financial institutions are currently not regulated in the same way as other high carbon sectors and, when it comes to reducing emissions, they are not legally required to align their financing activities with UK or global climate commitments.
Instead, some banks and other financial institutions voluntarily commit to reducing their carbon emissions.
The Bank of England’s 2021 climate-related financial disclosure notes that emissions from its physical operations were cut by just over half in 2020. Although it notes that this has been affected by the Covid restrictions on air travel, she says the biggest contribution to its reduction has come from its switch to renewable energies and “it remains on track to achieve an ambitious goal of reducing emissions by 63% from 2016 to 2030, a level consistent with the objectives of the Paris Agreement and industry best practices ”.
It also pledged to achieve zero net emissions from physical operations “by 2050 at the latest”.
The disclosure adds that the majority of its financial assets are held in UK government bonds, which “have the second lowest government bond carbon footprint among G7 countries.”
The Bank of England has also given banks and insurers until the end of this year to ‘fully integrate the prudential climate expectations set in April 2019’ and is working closely with the government on its climate agenda.
Current signatories to the letter include MPs from all major UK political parties and the letter remains open for parliamentarians’ signature until October, when a full list of signatories will be delivered to the bank.
The Bank of England declined to comment.