Lawmakers Warn Bank of England About Ungreen Covid Bond Buying

The Bank of England in the square mile financial district of the City of London, U.K., on Monday, Jan. 4, 2021. Britain's long-awaited trade deal with the European Union still leaves many questions unanswered for the world's biggest banks, trading venues and money managers as they prepare for a rupture in the region's financial system. Photographer: Jason Alden/Bloomberg
The Bank of England in the square mile financial district of the City of London, U.K., on Monday, Jan. 4, 2021. Britain's long-awaited trade deal with the European Union still leaves many questions unanswered for the world's biggest banks, trading venues and money managers as they prepare for a rupture in the region's financial system. Photographer: Jason Alden/Bloomberg

(Bloomberg) -- Bank of England Governor Andrew Bailey is missing an opportunity to fight climate change by buying the debt of polluting companies with no green strings attached, a panel of lawmakers warned.

Parliament’s Environmental Audit Committee said the bank should buy low-carbon bonds. It also said large companies that get support through the government’s Covid Corporate Financing Facility should be required to disclose their climate change risks.

“The bank is at risk of creating a moral hazard by purchasing high-carbon bonds and providing finance to companies in high-carbon sectors without placing any conditions on them to make a transition to net zero,” Philip Dunne, chair of the panel, wrote in a letter sent to Bailey on Friday.

The BOE acknowledged last year that its corporate bond purchasing program is aligned with 3.5 degrees Celsius of global warming -- far exceeding the Paris Agreement temperature goals aimed at avoiding climate catastrophe. In response to the committee, the bank said the Covid fiance facility is closed for new applications and will be repaid by March 2022.

“Climate change is a strategic priority for the bank. We have an ambitious work program on climate change, from the stress testing of the largest U.K. banks and insurers against climate-related financial risks through to working internationally with the central bank network for greening the financial system -- a network of which we were a founding member,” the BOE said in a statement.

Central bank leaders globally have been underlining the urgent need to cut emissions in the past year and to find more ways to finance a transition away from fossil fuels. But a survey released last month found that few are actually taking concrete steps to drive the shift to a low carbon economy.

By replicating the current makeup of the market when buying bonds, the BOE is attempting to have a neutral impact and avoid picking winners. But that approach doesn’t take into account the U.K.’s target to reduce emissions to net zero by 2050.

Late last year, Bailey said he was looking at adding new climate criteria to the BOE program that would allow it to maintain neutrality while respecting needs to cut emissions. No timetable has been set for that.