* 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 reaction)
By David Milliken
LONDON, May 21 (Reuters) - The Bank of England set out plans
on Friday to use its 20 billion pounds ($28.4 billion) of
corporate bond holdings to nudge companies to cut greenhouse gas
emissions faster, part of a wider government strategy to achieve
net-zero emissions.
The BoE said it was the first central bank in the world to
take steps that could ultimately see the most polluting
companies banned from its bond portfolio.
It will give firms time to reduce carbon emissions rather
than immediately selling off its holdings in energy companies,
power utilities and miners.
"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.
The BoE owns about 6.5% of the sterling corporate bond
market, after doubling its holdings last year as it restarted
asset purchases to support Britain's economy through the
coronavirus pandemic.
Although this is a relatively small share, the BoE hopes its
actions will serve as a benchmark for other investors. The
central bank will launch its first 'stress test' of British
banks' and insurers' exposure to climate change next month.
Climate change has become a greater focus for Britain's
government this year as it prepares to host the United Nations
COP26 climate summit in Glasgow in November.
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 by
2050.
The BoE's decision got cautious backing from Positive Money,
a think-tank which has campaigned for the BoE to take greater
account of the social and environmental impact of its policies.
"To meaningfully put its new mandate into practice, the Bank
must rapidly take measures to steer lending in a sustainable
direction, by penalising dirty lending and incentivising green
alternatives," Positive Money economist David Barmes said.
Hauser, speaking at an event hosted by Bloomberg, said the
BoE would set out detailed investment criteria after a
consultation ends in mid-July, and before a planned reinvestment
of maturing bonds in the final three months of this year.
Bonds previously classed as eligible for purchase included
those of energy giant BP, mining company Rio Tinto
and carmakers Volkswagen and Daimler
.
Under the new proposals, the BoE will set targets for the
overall carbon emissions of its portfolio and favour businesses
which are making faster progress at reducing their own.
"Our primary goal is to improve firms' incentives for
delivering the adjustments necessary to hit net zero, not simply
minimise the current carbon footprint of the Corporate Bond
Purchase Scheme," Hauser said.
($1 = 0.7045 pounds)
(Reporting by David Milliken; Editing by Kate Holton, Paul
Sandle and Catherine Evans)
Rio Tinto (RIO)
BP (BP.)
