Bank of England targets private finance for UK's low carbon transition

The Bank of England Thursday launched its COP26 agenda to help private finance support the UK's transition to net zero emissions for the whole economy.

The move seeks to make every financial decision align with a low carbon economy, and comes ahead of the 26th Conference of Parties to the UN Framework Convention on Climate Change, to be hosted by the UK in November.

"To achieve net zero, every company, bank, insurer and investor will need to adjust their business models for a low carbon world," the BoE said in a statement.

"The objective is that every professional financial decision will need to take climate change into account. The right framework for reporting, risk management and returns will embed these considerations and help finance a whole economy transition," it said.

The bank said recognizing net zero emissions was both an imperative of climate physics and, in the case of the UK and 120 other countries, the law of the land, financial markets are demanding clear disclosure and active management of climate opportunities and risks.

"Private finance is uniquely placed to help support the transition required by amplifying changes in attitudes, consumer preferences and climate policy. Markets can pull forward adjustments from the future, minimizing costs and smoothing the adaptation," the bank said.

Increased climate risk disclosure is likely to constrain the availability of capital for the most emissions intensive projects and investments across the economy, including the energy, industry, transportation, agriculture and buildings sectors.

"The City, London and UK are already leading the charge to a sustainable financial future, but there is lots of work still to be done," said William Russell, the Lord Mayor of London.

"With finance at the heart of this agenda, it gives us the mandate to deliver the monumental reallocation of capital needed for our transition to net zero," Russell said.

BoE Governor Mark Carney said to identify the largest opportunities and to manage the associated risks, "disclosures of climate risk must become comprehensive, climate risk management must be transformed, and investing for a net-zero world must go mainstream."

Carney was appointed UN Special Envoy for Climate Action and Finance in December 2019 and is also Finance Advisor for COP26 to UK Prime Minister Boris Johnson -– two roles he will take up formally when his term as BoE Governor ends.

In June 2019, the UK became the first major economy to pass a law to bring greenhouse gas emissions to net zero by 2050.

The COP26 climate summit in Glasgow is the most significant climate meeting since the COP21 gathering in 2015 when the landmark Paris Agreement was signed.

Signatory countries are expected to bring upgraded national pledges to cut emissions under the Paris Agreement's five-year 'ratchet mechanism' -- part of the wider goal to stabilize global emissions and avoid temperature rises of more than 2 degrees Celsius by 2100.