Bank of England Says Its Rate Setters Discussed Climate for First Time

Bank of England Governor Andrew Bailey said that the central bank’s Monetary Policy Committee recently discussed the economics of climate change for the first time, underscoring the U.K. commitment to slashing emissions.

“When it comes to climate change, we cannot stand still,” Bailey said in a speech to a Bank of International Settlements conference on the issue on Thursday. “We need to continue to be bold and learn from our work so far to deepen our understanding and inform future actions.”

The remarks are part of a global effort by central bankers led by the BOE to push the financial services industry into taking action to limit climate-related risks and help speed up investment to reduce harmful emissions.

In the past two weeks, the BOE has vowed to adjust its bond-buying program to tilt toward greener investments, and Bailey said he’s concerned that failure to act could bring about a bigger adjustment in the years ahead that could spark inflation.

“There is increasingly persuasive evidence that emissions, and so climate risks, are systematically under-priced in financial markets,” Bailey said at the BIS Green Swan Conference. “This means that continuing to replicate the structure of the sterling corporate bond market, without taking explicit account of the climate impact of bond issuers, is no longer in fact a truly ‘market neutral’ approach.”

Next week, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures will release a consultation aimed at prodding companies into giving more details about their environmental risks to investors.

The BIS conference and Bailey’s remarks are part of an effort to build momentum for action on climate ahead of a global round of talks on climate change the U.K. is hosting in November in Glasgow, Scotland. Finance ministers from the Group of Seven finance ministers will discuss mandatory disclosures in a meeting in London starting Friday.

Bailey also said:

  • The BOE is committing to reduce emissions from our physical operations so they will be consistent with net-zero by 2050 at the latest
  • “There is no template for a comprehensive framework for greening an asset portfolio held for monetary policy purposes. We know that outreach and engagement is critical in getting this right”
  • The U.K. Prudential Regulation Authority set out expectations for banks and insurers on the management of the financial risks from climate change in April 2019 and has set a deadline for firms to embed them by the end of this year

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