Andrew Bailey and Jerome Powell play down central banks’ climate change role

Andrew Bailey and Jerome Powell, two of globe’s top rate setters, have today said central banks should only have a limited role in tackling climate change.

The chiefs of the Bank of England and US Federal Reserve, speaking at a summit hosted by the Swedish central bank, the first in the world, played down their roles in offsetting rising temperatures.

Powell acknowledged the Fed has “narrow, but important responsibilities” in managing risks to the US financial system from climate change.

Banks could lose billions if natural disasters become more frequent as the planet heats up, sending ripples through the global finance network.

However, “without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell said.

“We are not, and will not be, a ‘climate policymaker’,” he added.

The head of the world’s most influential central bank did not provide any clues on where US rates will peak this year.

The Fed lifted borrowing costs at the quickest rate since the 1980s last year. Investors’ hopes that it will slow down in 2023 have been lifted by a string of data suggesting inflation has peaked and will gradually fall over the next 12 months.

Bailey echoed Powell’s hawkish climate sentiment by signalling he will not base interest rates decisions on whether they help to reach net zero.

However, European Central Bank (ECB) markets chief, Isabel Schnabel, speaking on the same panel as Bailey, sided with climate activists who reckon monetary authorities should play a more active role in keeping a lid on global temperatures.

She said the ECB should consider “reshuffling” its asset portfolio “towards greener issuers”.

Central banks have been criticised for buying bonds issued by businesses with poor ESG credentials. 

Corporate debt makes up a very small chunk of the ECB, Fed and Bank’s bond buying programmes launched after the financial crisis.