The Bank of England (BOE) plans to cut spending on climate change work and redirect the money to core functions because of rising pressures on its costs.

Climate programmes will slip lower on the central bank’s agenda so that officials can focus more on the core operations such as financial stability, markets and a digital currency, said a source with knowledge of the situation who asked not to be named.

The BOE’s climate work currently focuses on building environmental, social and corporate governance (ESG) disclosure guidelines, preparing insurers for risks from rising global temperatures and getting banks to carbon-test their balance sheets.

The move marks a sharp break from the emphasis that Mark Carney put on climate during his term as BOE governor from 2013 to 2020. It reflects calls by politicians for the current governor Andrew Bailey to focus on controlling inflation and identifying potential threats to financial markets.

Carney put climate-related risks to the economy at the heart of the BOE’s financial stability mandate, ordering stress tests on commercial lenders to ensure they were taking the long-term impact of rising global temperatures into account. He later became a United Nations special envoy on climate.

That work was supported by the Conservative government. Rishi Sunak, during his term as chancellor of the exchequer in 2021, updated the BOE’s monetary policy remit to “reflect the government’s economic strategy for growth that is environmentally sustainable and consistent with the transition to a net zero economy”.

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BOE officials led by Carney have been among the most vocal in speaking about the climate-related risks that the global economy faces in the coming decades. They helped build the Network for Greening the Financial System, a group of almost all the world’s top central banks coordinating best practice on oversight. 

That work was supported by Bloomberg Philanthropies, which also backed Carney’s work on the Task Force on Climate-related Financial Disclosures. Bloomberg Philanthropies is the philanthropic organisation of Michael Bloomberg, the founder and majority owner of Bloomberg LP, which owns Bloomberg News.

While Bailey has continued that effort, he has not been as visible as his predecessor. The issue has shifted out of the limelight since the pandemic, with officials struggling to keep inflation under control and navigate economic turmoil caused first by lockdowns and then the fiscal programme put forward during Liz Truss’ brief term in office last year. 

Inflation has rocketed to more than five times the BOE’s 2 per cent target, prompting accusations from lawmakers that Bailey moved too slowly on the issue.

Despite the BOE’s focus on climate, the bank has come under frequent attack from activists who wanted it to press harder on decarbonising the economy through the financial system. They are calling for green quantitative easing to fund the transition away from fossil fuels and towards “net zero” greenhouse gas emissions.

The challenge of climate change will remain one of the BOE’s seven strategic priorities until next year, but funding has already been cut now that its carbon stress test for the banking system has ended.

The BOE declined to comment.

The decision reflects the BOE’s budget constraint. Minutes to the December meeting of the BOE’s Court of Directors showed that it will need to “operate under tight budgetary constraint, which would impose challenges across the organisation”. That document was not specific about where savings will b found.

Non-executive members of the BOE’s governing board said it “seemed clear that efficiencies and increasing productivity gains would need to be considered”, given the pressures on its finances. “Governors said they had sought to de-prioritise some work streams in recent years, but the bank’s statutory obligations had to be met,” the minutes released showed.

In addition to budget strains from inflationary pressures, the BOE recently agreed a sub-inflation deal to lift pay for its 5,000 staff by 3.5 per cent plus a one-off 1 per cent salary top-up. Bloomberg