The Bank of England has announced plans to align a significant part of its bond portfolio with the government’s green agenda.

The Bank will better align £20 billion worth of sterling corporate bonds as the government moves closer towards its net-zero carbon goals.

Despite the intention to better align corporate bonds with the green agenda, the Bank does not plan to sell off those corporate bonds issued by high-carbon businesses, including utility and oil companies.

Andrew Hauser, executive director for markets at the Bank of England, said:

“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’.”

Instead, the Bank plans to set targets for the overall carbon emissions from its corporate bond holdings and will invest in ‘green’ corporate bonds as they become available.

The Bank will also require bond issuers to publish data about their carbon emissions.

Later this year, the Bank will rebalance its corporate bond holdings and move towards those issuers with a better climate performance track record. It also plans to limit investment in corporate bonds issued by companies where activities are widely regarded as inconsistent with reducing carbon emissions.

Any corporate bond issuers with high carbon emissions will need to publish a credible strategy for reducing their emissions, or they could no longer be eligible for bond purchases.

Hauser continued:

“The precise calibration of this approach will be developed in the coming months.”

While the Bank of England is the first central bank to reveal its intention to move towards green bonds, it hopes that others will follow suit.

In addition to the move towards green bonds, the Bank also plans to stress test banks and insurers next month to understand their exposure to climate risks.