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* BoE to refocus corporate bond holdings on greener
companies
* UK government asked BoE to support its net-zero carbon
aims
* No immediate divestment planned, firms told to lower
emissions
(Adds detail from speech, Q&A)
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 of sterling corporate bonds better aligned with
government goals to achieve net zero carbon emissions.
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 when it
begins the rebalancing process later this year.
"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.
The BoE said it would seek to rebalance its bond holdings
towards issuers with a stronger climate performance and restrict
investment in bonds issued by businesses whose activities were
widely regarded as inconsistent with lower carbon emissions.
Issuers whose emissions are currently high would need to set
out a credible path to reduce emissions or risk no longer being
eligible for bond purchases.
The BoE will focus on the path of a company's emissions as
well as the outright level.
"The precise calibration of this approach will be developed
in the coming months," Hauser said. The BoE is not currently
buying corporate bonds, and the next scheduled reinvestment of
maturing bonds is due in the final quarter of 2021.
Hauser said the BoE was the first central bank to take these
steps, and hoped it would set a direction for the wider market.
The BoE next month will 'stress test' banks and insurers for
their exposure to climate risks.
The BoE doubled its corporate bond holdings during last
year's COVID pandemic. Bonds to date have been chosen to be
representative of sterling issuance by non-financial companies
that make a material contribution to the British economy.
The BoE owns about 10% of all corporate bonds that fit its
eligibility rules. Hauser said the rebalancing would not damage
the BoE's main goals of targeting 2% inflation and ensuring
financial stability.
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.
Britain's government has given extra focus to environmental
issues this year as it prepares to host the United Nations COP26
climate summit in Glasgow in November.
($1 = 0.7050 pounds)
(Reporting by David Milliken; Editing by Kate Holton and Paul
Sandle)
