Rachel Reeves is to impose net zero mandates on the City despite pledging to rip up red tape and relax rules she believes are holding back the economy.
The Chancellor has written to City regulators, including the Bank of England, saying they must do more to prioritise green policies and warning that “the climate and nature crisis is the greatest long-term global challenge that we face”.
In a letter to Andrew Bailey, Governor of the Bank of England and chairman of its financial policy committee (FPC), Ms Reeves said: “The committee should therefore continue to regard the risks posed by climate change, including physical and transition risks, as relevant to its primary objective.”
The requirements are likely to see more stress tests imposed on lenders and other financial institutions to assess their ability to cope with the effect of climate change, as well as the impact of other “nature-related financial risks”.
It comes after Ms Reeves promised in her Mansion House speech to cut back unnecessary regulation to boost the economy.
“We need economic reform to unlock the full potential growth of the British economy,” she told the City audience on Thursday night.
“Our approach to regulation is a critical part of that. As the Prime Minister has already set out, the key test for regulation is whether it will make our economy more dynamic and more competitive.”
Bank’s growing burden
Ms Reeves’s plans mark a reversal from the Bank of England’s previous mandate set by Jeremy Hunt, the former chancellor, who removed “climate change and energy security” from the FPC’s remit last year.
Top economists including Lord Mervyn King, former governor of the Bank, have previously criticised efforts to lumber the institution with too many responsibilities.
“The Bank of England can do nothing about climate change,” he told The Telegraph last year.
He also warned that it risked undermining the Bank’s operational independence.