BOE’s ‘Game-Changing’ Green QE May Set World Standard, BofA Says
(Bloomberg) -- The Bank of England’s “game-changing” plans for green asset purchases may provide a blueprint for other central banks, according to strategists at Bank of America.
The BOE said Friday that it would ditch polluters and buy more bonds from sustainable firms, and skew its purchases toward stronger climate performers, as part of a wider global shift toward sustainable investment.
In note Tuesday, Bank of America strategists including Barnaby Martin and Kay Hope said the approach should increase the price gap between environmental leaders and laggards -- breaking a pattern in place for years. They called the move a “game-changing” moment for credit markets.
“The BOE’s framework will be instrumental in dictating how other central banks ‘green’ their credit purchases, something that is clearly looming for the European Central Bank,” they said.
Yet questions are already being asked about the small print in the initiative. HSBC Holdings Plc strategists including Song Jin Lee and Jonathan White said that while the proposals will disadvantage firms working in cement, chemicals, electricity generators and travel, a lack of clarity could undermine its wider success. Although the BOE published a score card explaining how it would classify firms, it didn’t reveal which firms fall into which category, they added.
“Neither are there sufficient details on the relative importance of each criterion for investors to use the scorecard more broadly,” the analysts wrote in a client note. “The Bank risks blunting the efficacy of its green QE without further clarity on how its climate criteria are applied.”
The central bank has a 20-billion-pound ($27 billion) target for its holdings of sterling corporate bonds as part of its QE program. The next round of investments is expected in the coming weeks and may include around 600 million pounds of net purchases, according to HSBC.
The BOE has said previously that it would seek to influence the thinking of others where appropriate and illustrate how investors might approach similar challenges. A spokesperson for the central bank declined to comment on Tuesday.
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