Governor of the Bank of England Andrew Bailey. Photo: PA
Bank of England (BOE) governor Andrew Bailey doubled down on promises to carry out policies crucial to meeting the UK’s net-zero goals in a speech to a conference on Tuesday afternoon.
Outlining the bank’s position he stressed the importance of adapting to the “significant transformations” in the financial system in recent decades, citing central bank digital currencies and cyber risk among other shifting priorities for the central bank.
He noted that under current climate policies, which are insufficient to reach net-zero emissions, analysis from the central bank body the Network for Greening the Financial System (NGFS) scenarios suggest that up to 13% of global GDP would be at risk by 2050, even before accounting for the potential consequences of severe weather events.
The consequences of climate change “create financial risks and economic consequences,” he said. Meeting goals will require an “unprecedented structural shift in the economy, particularly on the supply side”.
“The lesson from previous episodes of structural change is that they never involve a frictionless re-allocation of capital,” he said.
Watch: UK to recover from COVID by end of year – Bank of England
In a Q&A after the speech he noted the importance of an international consensus to enact change, noting that with agreement across different governments things would start to gain momentum.
In May, the BoE unveiled plans to make its corporate bond purchase scheme (CBPS) more ‘green’ as the UK government aims to achieve net zero carbon emissions by 2050.
In a speech hosted by Bloomberg, Andrew Hauser, the BoE’s markets executive director, said that the bank would set targets for the overall emissions of its holdings, as well as investing in green corporate bonds when they are available.
Although the BoE will not immediately sell-off bonds issued by businesses that have high carbon emissions, such firms will have a mandatory requirement to disclose emissions and must set out a roadmap to reduce them, or risk no longer being eligible for bond purchases.
Read more: Sustainability and societal changes spur a generation of conscious UK investors
The bank has, in the past, been accused of backsliding on the issue. In December, Bailey said he was “fully committed” to continuing the work started by his predecessor Mark Carney on the topic.
“I reject any suggestion that we are not continuing to take climate change seriously,” Bailey told journalists at the time.
Carney, who left the Bank of England in March, was vocal on the need to move the economy towards carbon neutrality. Under his watch, the Bank of England began looking at the risk climate change posed to the financial sector and he spoke frequently about the need for a reform. Carney took up roles advising the UK prime minister on climate change and as a UN envoy on the issue after leaving the Bank of England.
Watch: What are SPACs?