The Green Mandate of the Bank of England

The chapter discusses the key elements of the Bank of England’s legal mandate and whether these can serve as a legal basis for supporting environmental sustainability policies as part of its monetary and financial stability objectives. Section 2.1 discusses central bank mandates and objectives generally by exploring the regime or legal formulation that authorises central banks to provide for policy decision-making and its implementation regarding managing climate risks. Section 2.2 considers the Bank’s mandate and environmental sustainability by examining the arrangements provided by the Bank of England Act 1998 for the Bank to take the government’s economic policy into account when pursuing its secondary objectives. Section 2.3 analyzes the meaning of ‘secondary objectives’ for the Bank and how these are set either via legislation or via remit letters. Section 2.4 discusses how central banks in practice can support secondary objectives whilst pursuing their primary objectives. Section 2.5 analyzes the problem of legal uncertainty regarding the Bank’s ability to support an environmental sustainability policy, given that this is only specified in remit letters, and argues that there would be greater legal certainty if there were an explicit reference to sustainable environmental policy as a secondary objective in its statutory objectives. Section 2.6 considers the general question of whether central banks should discriminate in favour of green assets. Section 2.7 concludes that the Bank has a duty to ensure that material physical and transition risks are incorporated into monetary and financial stability policy and that this should be clearly stated in its governing law.