BOE Considers Raising Capital Costs for Pollution in Green Push

(Bloomberg) -- The Bank of England is considering making it more expensive for banks to finance polluters, extending its fight against climate change.

A “brown-penalizing factor” imposing additional capital requirements for environmentally harmful business is under discussion among central bank officials, Mark Carney, the outgoing BOE governor, said in a Feb. 27 letter to U.K. members of parliament and released today.

The BOE is coordinating with a group of about 50 central banks and supervisors, who are reviewing the risks of various assets. The BOE has also started a climate stress test to provide more information about the banking industry’s ability to handle the transition to a lower carbon economy.

Carney’s four-page letter acknowledged “impediments” to instituting the policy. Among the BOE’s concerns are the absence of a clear definition of brown, or harmful, activities and the lack of good data about the riskiness of such assets. That’d make it hard for supervisors to justify capital penalties, according to the bank.

European Union policy makers have discussed lowering capital charges for banks that make green investments, a “green supporting factor,” for a few years. However, it would likely only have a limited impact, reducing capital requirements by 8 billion euros ($9.1 billion) at most, UBS Group AG analysts led by Lorraine Quoirez said in a note to clients on Tuesday. A so-called “brown penalty” would add as much as 22 billion euros to banks’ capital requirements, the analysts said.

Mobilizing financial markets to support the transition was a key goal of the 2015 Paris climate accord. It has been the catalyst for many of the world’s largest asset owners and money managers to pledge they’ll put their vast resources behind the push to limit global warming. Even so, fund managers face criticism from activists and shareholder campaign groups for falling short on their promises to fight climate change and continuing to prop up the fossil fuel industry.

To contact the reporters on this story: Silla Brush in London at sbrush@bloomberg.net;Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, James Hertling, Brian Swint

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