Labour to give Bank of England role in tackling climate crisis

Labour plans to give the Bank of England powers to help check the readiness of City firms to cut carbon emissions and invest responsibly to tackle the climate emergency.

John McDonnell, the shadow chancellor, announced proposals for an unprecedented expansion of the central bank’s role at the heart of policymaking, with officials at Threadneedle Street supporting the Treasury in checking on progress towards carbon targets.

McDonnell said the Bank’s governor would also join the next Labour chancellor on a sustainable investment board to oversee lending to British businesses with the aim of boosting productivity.

Speaking to City executives in central London on Monday, McDonnell said Labour planned to conduct a review of City practices and how investments could be directed to promote technologies that cut carbon emissions.

The review would focus on the shadow banking sector, where borrowing and lending takes place beyond the oversight of regulators. It will report by October as part of Labour’s plans for a “green industrial revolution”.

Related: Global financial bodies not fit for purpose, John McDonnell says

McDonnell said: “I am setting up a review group to overview the financial system as it currently relates to the climate emergency, in terms of both where and how it is causing or exacerbating the problem of climate change and where and how it could be providing solutions to problems.”

He repeated his warning that firms listed on the London Stock Exchange that failed to meet environmental targets risked being denied access to the main equity market, forcing them to become private businesses or list in other jurisdictions.

“This means that when we delist companies that fail to meet environmental criteria from the London Stock Exchange, investors can be confident that their money is not going on making the world uninhabitable for their children,” McDonnell said.

Labour has already set out wide-ranging plans for a network of regional banks and an enhanced post office network to promote investment.

McDonnell said these institutions would be given the dual role of increasing investment in green technologies and making a profit.

The shadow Treasury team has already met representatives from Extinction Rebellion, the radical environmental protest group, to hear their ideas for addressing the climate crisis.

Proposals from the independent Committee on Climate Change, headed by the former Tory minister John Gummer, and from the National Infrastructure Commission have already played a large part in Labour’s thinking, McDonnell said.

However, while Labour has committed to the target of reducing carbon emissions to net zero by at least 2050, in line with the government’s aim, there are few policy details to say how it would get there.

The review of the City would include commercial banks, investment banks, pension funds, hedge funds, private equity and asset managers to cover areas of the City that often escape scrutiny.

Labour has put together a panel to review how the government and the Bank’s new responsibilities can be implemented, including the former head of the civil service Lord Kerslake and the prominent City lawyer Peter Rice.

“The UK is and will remain a hub for finance,” McDonnell said. “That gives us all the more responsibility to make sure that the lending that takes place here aids the tackling of the climate crisis rather than fuelling it.”

Labour plans to offer a mix of stiffer regulation and tax incentives to promote “large-scale beneficial investment” to support growth.

“But we will also fulfil our responsibility to ensure adequate policing of investments using the mechanisms available to us to require companies to live up to their climate change responsibilities,” McDonnell said.

The Bank’s monetary policy committee currently sets Britain’s interest rates while its financial policy committee and the Prudential Regulatory Authority oversee the financial stability of the banking sector and City firms.

An expansion of the bank’s role to encompass promoting investment and higher levels of productivity while separately supporting Labour’s decarbonisation of the economy would make it the most powerful independent central bank in the developed world.

Responding to questions about Labour’s stance on Brexit, McDonnell said he would prefer to campaign to remain in a referendum or general election despite representing a constituency that voted to leave the EU.