Tuesday 10 March 2020 5:08 pm

Bank of England could penalise banks for polluting assets

Bank of England governor Mark Carney has said Threadneedle Street is weighing up penalties for banks that hold assets that encourage polluting.

Carney told parliament’s Treasury Committee in a letter that the Bank is considering a “brown penalising factor”, which he said would introduce tougher capital requirements for banks whose investments encourage “polluting and potentially risky activities”.

The letter came a week after Andrew Bailey, who will replace Carney as BoE governor on 16 March, said there was a “very strong argument” for ending the central bank’s investments in fossil fuel companies through its quantitative easing bond-buying programme.

The Bank of England under Carney has been outspoken on climate change and the need for the financial sector to support the shift to a low-carbon economy. Campaigners have pressured Bailey to continue this legacy.

Yet Carney said today that there are a number of difficulties with introducing penalties on polluting assets, such as the lack of a clear definition of “brown” assets.

He said in his letter that there is an “absence of data that allows us to measure the riskiness of an asset”.

The Bank is due to stress test UK lenders against a “catastrophic” climate change scenario in 2021, and Carney said this will provide additional data on which assets should be deemed the riskiest.

Positive Money, a climate campaign group, said it welcomed Carney’s comments.

“The Bank of England introducing a brown-penalising factor would be a game-changer in the battle to decarbonise our economy, as it would help stem the huge flow of cheap credit our financial system is pouring into fossil fuels,” said David Clarke, head of policy at Positive Money.