In the face of the banking crisis, public institutions bailed out the banking sector. It’s time to bail out the climate.
The Bank of England’s approach to climate change runs the risk of leaving action until it is too late, a report by campaign group Positive Money has concluded.
The organisation, which campaigns for a more equitable and sustainable financial system, highlighted the threat that a changing climate presents to profits and stability of the financial sector, either through physical damage from extreme weather, or revaluations caused by technological or policy changes.
It also stated that banks and other financial institutions need to shift billions of pounds away from fossil fuels to fill the gap in green investment.
The group acknowledged that the Bank of England has been active on climate change, with its governor Mark Carney speaking regularly about the issue, and bringing climate change to the attention of the international finance community.
Carney chaired the Financial Stability Board, which created a global task force of experts from the financial sector to develop recommendations on how businesses should report on climate risk to enable investors to make better decisions.
However, it said that the bank only sees the issue through the lens of risk and financial stability, and overlooks the importance to the climate of commercial banks’ power to create new money when they lend.
Excessive credit is allocated to environmentally destructive activity like fossil fuel production, while insufficient lending is provided to low carbon industries, it said.
The main barrier to change is political, as the bank’s mandate is set by parliament, and primary legislation would be needed to amend it, it added.
Barry Gardiner MP, speaking at the report’s launch in Westminster, compared the economic threat posed by climate change to that of the 2008 global financial crisis.
Gardiner, who is shadow secretary of state for international trade, and shadow minister for energy and climate change, said: “The economic crisis of climate change is markedly different to the recession, in that we’ve seen it coming for some time.”
The UK must redesign its financial systems to tackle climate change, just the same as it did after the financial crisis, when major changes were made such as stress testing banks and raising the requirements for how much capital banks needed to keep in reserve, he said.
He praised Carney for bringing climate change to the fore in the financial sector, but said that the bank needed to make deeper changes to accelerate action on climate change, such as changing its criteria for buying bonds, which were currently skewed towards higher carbon sectors, and publishing the climate risk to its own assets, he said.
“The Bank of England’s mandate is to protect and enhance the stability of the financial systems of this country. If climate change poses a systemic risk to our finances, then it’s surely in its remit to look at climate change,” Gardiner said.
“In the face of the banking crisis, public institutions bailed out the banking sector. It’s time to bail out the climate,” he added.
Compartmentalising climate change
Lord Deben, chair of the government’s climate advisory body the Committee on Climate Change, also spoke at the launch, saying: “The Bank of England should no longer compartmentalise climate change.
"If its governor says it’s true that climate change is perhaps the greatest disruptive force in international finance, then they must do something about it.”
The Bank of England declined to comment on the report. But report author and economist at Positive Money Rob Macquarie said that it had spoken to bank officials and they were “very on the page” on climate risk.
“But there is no way those messages are getting across to the monetary side of the bank,” he said.
Green investment collapse
Meanwhile, MPs on the cross-party Environmental Audit Committee called on ministers to publish a plan to secure the investment needed to meet the UK’s carbon budgets.
A series of government policy changes have led to a “dramatic and worrying collapse” in clean energy investment, the committee’s inquiry on green finance found.
Investment in clean energy fell by 10 percent in 2016, and 56 percent in 2017, leaving it at its lowest since 2008 and threatening the UK’s ability to meet its legal carbon budgets, it said.
Catherine Early is a freelance environmental journalist and the former deputy editor of the environmentalist. She can be found tweeting at @Cat_Early76.