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(Adds detail from speech and announcement)
By David Milliken
LONDON, May 21 (Reuters) - The Bank of England set out plans
on Friday to make its 20 billion pounds ($28.4 billion) of
holdings in sterling corporate bonds better aligned with
government goals to achieve net zero carbon emissions, starting
later this year.
However, the central bank will not embark on an immediate
sell-off of bonds issued by businesses that have high carbon
emissions, such as power utilities and oil companies.
"Divestment is a powerful tool, and should remain squarely
in the toolkit. But it should be used as a credible threat to
reinforce incentives, not an indiscriminate 'quick fix'," BoE
executive director for markets Andrew Hauser said in a speech
hosted by Bloomberg.
The central bank said it would set targets for the overall
emissions of its corporate bond holdings, invest in 'green'
corporate bonds as they became available, and require bond
issuers to publish their emissions to be eligible.
Bond issuers whose underlying emissions were high would need
to set out a credible path to reduce emissions or risk no longer
being eligible for bond purchases.
"The precise calibration of this approach will be developed
in the coming months," Hauser said.
The BoE doubled its corporate bond holdings during last
year's COVID pandemic. Bonds were chosen to be representative of
sterling issuance by non-financial companies that make a
material contribution to the British economy, and represent
roughly 10% of issuance that falls into this category.
Bonds recently classed as eligible for purchase include
those of energy giant BP, mining company Rio Tinto
and German carmakers Volkswagen and Daimler
.
In March finance minister Rishi Sunak changed the BoE's
policy mandate to require it to support a government commitment
to shift towards an economy with net zero carbon emissions.
($1 = 0.7050 pounds)
(Reporting by David Milliken; Editing by Kate Holton and Paul
Sandle)
