Bank of England bond buying criticised for carbon skew

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The Bank of England has been criticised for disproportionately backing carbon-intensive issuers in its corporate bond buying programme, at odds with Governor Mark Carney’s efforts to spell out the impact of climate risk on financial markets.

Carbon-intensive manufacturing and utilities make up 49.2 per cent of the Bank’s corporate bond purchases, while making up just 11.8 per cent of the economy, the paper from the London School of Economics reports.

Despite representing just over a tenth of the UK economy these industries are responsible for 52 per cent of greenhouse gas emissions.

The ECB also came under fire with 62.1 per cent of its corporate bond buying going into manufacturing and utilities and 8.4 per cent going into oil and gas companies. The Bank of England currently holds 1.8 per cent in this sector.

The report, The climate impact of quantitative easing, notes that renewable energy companies are not represented at all in ECB or Bank of England purchases.

The skew towards carbon-intensive issuers could reinforce the existing “green investment gap”, the report warns.

“There is evidence of a disproportionate jump in the price of eligible assets after the introduction of these corporate bond purchase programmes,” the report says and warns this could encourage more debt issuance by corporations in high-carbon sectors relative to low-carbon sectors by reducing their relative cost of capital.

The report, from the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at LSE, calls on the Bank to consider changing their purchasing strategy.

Last year, Carney and businessman Michael Bloomberg launched a report on the threat of climate change to financial markets outlining recommendations for increased climate risk disclosure.