Speech
Thank you very much for welcoming me to this event to mark London Climate Action Week (LCAW) and thank you to the LCAW Secretariat and E3G for organising today’s event, which has brought together so many leaders to discuss and share solutions on how we turn aspiration into action to address climate change.
And action is the key theme I want to focus on today. Next week the Bank of England will launch our first Climate Transition Plan setting out the action we will take to deliver our 2040 physical greenhouse gas emissions target.
Now the symbolism is not lost on me that I represent a 329-year-old institution, the Bank of England, coming to speak at the Guildhall where construction started on the great hall in 1411. It just serves to highlight the complexity of adapting our buildings and transitioning our organisation for a fast-approaching target.
While the Bank may have over three centuries behind us, transformation is not new. We did, after all, entirely rebuild our Threadneedle Street office in the interwar years to meet the needs of office working of the time. Although our Climate Transition Plan does not include a transformation quite as radical as that, the Bank has, and must continue, to transform how we work to ensure we can continue to reflect the UK and to deliver our mission.
Don’t mistake me, the challenge we face now is unique and should not be taken lightly. Climate change is a reality we face today, not tomorrow, so action is also required today.
Today I intend to very slightly lift the curtain on what we say in our climate transition plan. But also, I will talk more broadly about the insights we have taken from developing our strategy, which will inform how our plan develops. This will, I hope, be useful for other organisations, and maybe even other central banks, considering their own transition plans.
Why is the Bank publishing a climate transition plan?
Let me start on why the Bank is setting out its transition plan. First, the science. The latest Intergovernmental Panel on Climate Change (IPCC) synthesis report continues to inform us about the impact of our changing climate on the world we live in.
Second, the UK Government has legislated a target to transition the UK economy to net zero emissions by 2050.footnote [1] That will drive change across the whole of the economy as we move to a net zero world, including for the Bank.
Third, while most people are familiar with the Bank’s policy functions, such as financial and monetary policy, the Bank is also a provider of core components of the UK’s critical national infrastructure. That infrastructure must be resilient and reliable.
The Real Time Gross Settlement (RTGS) system operated by the Bank, is absolutely vital to the orderly functioning of the UK financial system and settles an average £750bn worth of transactions every day. Each day we publish SONIA – or the Sterling Overnight Index Average – an interest rate benchmark referenced in over £90 trillion of new transactions each year. And of course, there are over 4.6 billion Bank notes in circulation. These are collectively worth about £81 billion, which we are responsible for ensuring are printed, distributed and, ultimately, disposed of when they are withdrawn from circulation.
So, the Bank needs to be operationally resilient in the very broadest sense to reliably provide the critical national infrastructure for which it is responsible. That includes resilience towards the physical and transitions risks from climate change.
The Bank has also been very clear that the banks and insurers we regulate should take action to address the financial risks they face from climate change, including engaging with climate disclosures. As the authority responsible for enhancing the resilience of the financial system it is only right that we hold up a mirror to ourselves to ensure we meet the standards we expect of others.
Transition plans are fundamental to the framework, alongside climate related financial disclosures and product labels, to facilitate transition. They help firms to set their strategic approach to transition. They provide forward looking information that enables stakeholders, such as shareholders, to steward companies. And they allocate capital to support real economy to decarbonise and manage risks.
The Climate Transition Plan
So, the Bank is a core component of the UK’s modern economy, and we do this while operating out of an estate, including the Debden banknote printing works and a historical, Grade 1 listed building. It’s no small matter to reduce the environmental impact of the physical operations of buildings like this while remaining sensitive and respectful to their heritage.
Let me briefly summarise our plan which, I should say, draws on the work of the Transition Plan Taskforce (TPT).
Our central target is to reduce greenhouse gas emissions from our physical operations by 90% by 2040 relative to our baseline year in 2015/16. We also have interim milestones to reduce emissions every five years, the first to reduce emissions by 40% by 2025.
We have already reduced our emissions from electricity usage to zero, so our focus is in two places, the direct emissions (Scope 1) from our activities and our indirect emissions in our supply chain (Scope 3). We’re taking action in a number of ways to cut direct emissions. Take, for example, the system we use to cool our data centres. Before, the heat produced as a by-product by the coolers would have gone back into the atmosphere, but now we recycle it back into our heating system – saving roughly 150 tons of CO2 emissions per year.
For indirect emissions we are working with organisations along our supply chain, from the largest global corporates to local SMEs, to ensure that they are able to quantify and begin to mitigate their own emissions. So, for example, in recent years, we have changed the way we tender for the supply of the polymer used in our banknotes which contributes to delivering this plan. I’ll talk more about this in a moment.
Making an ambitious plan over which you hold the levers is hard enough, but rightly we have been subject to significant challenge about the degree of reliance we have upon things outside of our control. Elevating the concept that carbon efficiency is part of the ‘V’ in value for money has been important.
The Bank of England’s Climate Transition Plan
Insights
I have spoken about the action we are taking, but in the interests of collaboration let me share some insights I took away and which I hope will help others as they act.
Setting the future direction today
First, the importance of executives taking decisions today to set a course into the future. At first glance it seems simple. All boards take decisions and set strategies consistent with the purpose reflected in their corporate constitutions, for most that is protecting value for shareholders. So, what is new?
In a nutshell, it is both the scale and the timescale of the challenge.
Let’s start with the scale. Given the implications of unmitigated climate change, the Bank has to ensure that the critical national infrastructure that we operate remains resilient. For boards of companies, that means taking action to protect the long-term shareholder value of the company consistent with their directors’ duties.
Then there’s the timescale. Modern business practices tend to work over a horizon of a few years – not 30 years or more. Climate transition planning requires a very different sort of decision making.
So how did we approach this twin challenge? First, we understood the impacts of the climate outcomes on our organisation. Here, you can use tools suited to your business – scenario analysis is one. Then, set a science-based long-term target to transition but break that down into interim targets. This brings you into time windows where boards are more used to determining strategies and driving change, but with the long view of where we need to get to. Crucially, it provides a starting point for long-term action which can be refined as you make progress.
Collaboration can accelerate transition
My second reflection, building on a point that my colleagues the Governor and the Executive Director for Financial Stability Strategy & Risk, Sarah Breeden, have both made recently, delivering net zero will happen through individual actions. But we can accelerate the capabilities for people to take action by working collaboratively. The Bank’s indirect emissions (Scope 3) amount to 98% of our total emissions from our physical activities. So, in order for the Bank to reduce our total emissions we are reliant on the actions of our suppliers to reduce their emissions.
We could just switch suppliers to bring these emissions down. But that does not necessarily help reduce the production of emissions overall or, therefore, mitigate the long-term impacts on the Bank of climate change. It also may not deliver value for money, which as a public body is essential, or allow us to procure the quality services we need.
Some might say the lack of control over indirect or Scope 3 emissions is a reason not to disclose them or omit them from the plan, but I disagree – I see it as an opportunity. It is an opportunity to engage with the supply chain, to ensure they understand our needs as a customer and to help them plan to reduce their emissions. It is also an opportunity for us to give suppliers confidence in our plans and the stability needed for them to invest in their business over the course of our contract with them.
A little earlier, I mentioned that we have changed how we tender for the polymer used in our banknotes to minimise the environmental impacts. By signalling the importance of managing down the carbon intensity of the inputs into banknote production, we have encouraged investment in technologies that control and mitigate the release of solvents during polymer substrate manufacture. We’ve also supported the implementation of Environmental and Energy Management Systems to provide better data and insight. Taken as a whole, this collaborative work supports our efforts to both measure and mitigate the carbon footprint of our supply chain.
This approach also reflects the “strategic and rounded” approach recommended in the TPT’s draft framework where entities should consider the full range of levers at their disposal to prepare for an orderly economy wide transition. Engaging with your supply chain to collaborate is one such lever.
I have dwelled on the need for collaboration given the scale of the Bank’s, like any organisations, indirect emissions. There is a huge opportunity here, provided we engage with suppliers now.
Make a start and don’t let perfect be the enemy of the good
This is an important point – do not let barriers be a blocker.
I want to be open that this is the first version of our plan which will be refined over time. Taking a bold step and setting out a plan, does not prevent any business from improving or refining the plan with time. This is new for all of us. We hope others learn from us and we hope to learn from others too. So please share your own findings so that others can follow. But without that bold step, it will be impossible to make the long-term commitments necessary, and by not acting today you may well limit your options in the future.
That’s not to say that for all of us as decision makers, there aren’t careful judgements needed to balance the actions we are committing to today against the need to be long‑term and future-focused. As I mentioned earlier, the heart of the challenge here is that the scale and timescale is so far outside our comfort zone.
What next?
Yesterday, the International Sustainability Standards Board (ISSB) launched its first standards on climate disclosuresfootnote [2]. I know the UK Government will move rapidly to review these standards aiming for endorsement. Later this year we intend to review our own approach to climate disclosure considering when and how to move from aligning with the Task Force on Climate-Related Financial Disclosures (TCFD) to ISSB disclosures. These will help us to refine and develop our own approach in tandem with continuing to learn and evolve our transition plan.
Let me close by saying these sorts of speeches always seem to make it sound easier than it is. The scale and timescale of the challenge – as I have set out – mean that this continues to be a daunting task for all of us. While I’m proud that we are amongst the first central banks to produce a climate transition plan, my encouragement to all of us is that each and every step matters. And the first step is the crucial one.
I’d like to thank Julia McKenzie, Gary Moore, Katherine Parry, Paddy Pope, Josh Simons, Tim Rawlings, Karen Box and Lizzie Levett for their assistance in drafting these remarks. I would also like to thank Andrew Bailey, Sarah Breeden, Andrew Hauser and Sarah John for their helpful input and comments. The views expressed here are not necessarily those of the Bank of England.
