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The Bank of England is cutting the amount of work it does to support the government’s green agenda after the chancellor removed climate change from a list of policy priorities set out in the central bank’s remit.
Until recently, climate change featured in a list of four critical government policy aims the BoE’s Financial Policy Committee was tasked with supporting, on top of its primary aim of protecting financial stability.
But in November, when chancellor Jeremy Hunt renewed the committee’s remit, he removed climate change from this list. Instead, Hunt told the central bank that the FPC’s four priorities for supporting ministers’ financial services strategy should include “boosting productive finance”.
Andrew Bailey, the BoE’s governor, told a parliamentary committee on Wednesday that the central bank had already reduced resources on climate-related work as a result and was reviewing it further.
“We’ve had to sit down and say, what does this mean . . . We don’t have quite such precise regard to government policies in that area, because they have taken them out of the list of government priorities,” he told the House of Lords Economic Affairs Committee. “We’ve tried to slim it down in that sense”.
The remit letter still makes it clear that the FPC should take account of the risks relating to climate change as part of its core work on financial stability, looking at both the physical risks of changing weather and those posed by the transition to net zero.
“There is a financial stability risk. We haven’t ignored that,” Bailey said. But he added: “The depth and breadth of the work we do will be trimmed back somewhat. We will focus on core financial stability risks . . . There is always an issue about relative priorities. We are having to put more focus on to operational risk, and yet more focus on to cyber risk.”
Under Bailey’s predecessor, Mark Carney, the BoE played a leading role in international efforts to develop stress tests of financial institutions’ exposure to climate-related risks, and new reporting requirements.
In 2021, Prime Minister Rishi Sunak outlined a strategy to turn the UK into a hub for green finance, where investments or loans are used to tackle climate change or deal with other environmental issues.
It was in that context that the FPC was first asked to support the government’s climate-related aim “to align private sector financial flows with environmentally sustainable and resilient growth”.
But more recently, the UK’s commitment to green objectives has been questioned, after the government set out new legislation to mandate annual North Sea oil and gas licensing rounds, and watered down some net zero policies to avoid a public backlash against potentially costly new rules.
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