This is big. Pressure from all sides is forcing the Bank of England to rethink. They set the rules for how banks can operate in the UK, and now, they’re talking about putting extra charges on banks who are funding fossil fuels. This might just sound like a few extra fees to pay, but it could be pivotal. Right now, banks can pour however much money they want into fossil fuels without any consequences. But with extra charges, it will make the bank’s investment more expensive. And if the extra charges are high enough, it would make the fossil fuel investments unaffordable!

Tweet from Positive Money

In its Climate Change Adaptation Report, the PRA (part of the Bank of England) said that there is scope to use the existing capital regime to address the “financial consequences” of climate change, and that it will “be prepared to impose an additional capital charge or scalar where appropriate” for banks investing heavily in fossil fuels.

Positive Money’s senior economist David Barmes said:

“Higher capital charges for unsustainable investments would help secure financial stability and stem the vast amounts of money being poured into a carbon bubble. Considering the huge work that needs to be done to align finance with governments’ climate commitments in such a narrow timeframe, such reforms are long overdue and policymakers should move to implement them without delay.

“After months of pushing back on the idea of ensuring capital rules reflect climate risk, believing that banks can be left to themselves to address this systemic issue, it is positive that the Bank of England appears to be recognising the need for stronger regulation.

“The Bank has finally accepted that climate-related risks are different to other financial risks because they involve huge amounts of uncertainty, tipping points, and long time horizons, meaning traditional risk measurement tools and existing capital buffers may be ill equipped to deal with the severe threats they pose.”