And, second, when ranking firms’ contributions to the achievement of net zero, look forward as well as back – giving weight to the calibre of their emissions-reduction plans, and their performance over time against those plans. Divestment is a powerful tool, and should remain squarely in the toolkit. But it should be used as a credible threat to reinforce incentives, not an indiscriminate ‘quick fix’. A strategy of engagement works best when the message is big, unavoidable and credible. Here we face a slightly different challenge. The Bank of England’s voice has influence. But the CBPS is not a huge facility. £ may sound like a lot. But it’s small in the world of global capital markets – accounting for just 6.5% of the sterling corporate bond market, 0.5% of total sterling traded assets and a vanishingly small share of global holdings (Table 1). Table 1: The CBPS in context  16  A worked example is given in Section 3 of the Discussion Paper. 8  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  8  What’s more, we are not currently making active purchases, because the MPC’s target stock for the CBPS was reached last year. That means the only scheduled purchases are reinvestments, averaging around a billion pounds a year in the near term. So it’s clear we can’t rely on buying power alone. Table 2: Selected investor frameworks17  But we can still use our position to take a lead, working closely with other like-minded central banks and investors.
And, to the extent the Bank’s actions were influential, the financing costs of high-emissions firms should rise, sending a powerful wakeup call. But indiscriminate ‘portfolio decarbonisation’ of this kind cannot be the best strategy for investors like the Bank seeking to incentivise economy-wide transition to net zero, for two key reasons:  15  MPC Remit statement and letter and FPC Remit letter | Bank of England 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7    First, the high-emissions firms whose bonds we would be selling are the ones we most need to be at the vanguard of emissions reduction. But selling their bonds doesn’t destroy them as assets, it simply transfers them to other investors. And if investors seeking to incentivise transition are all decarbonising, those left holding the bonds are by definition going to be those with a weaker commitment to net zero;    Second, simply selling anything with a high carbon footprint penalises those with strong and credible emissions reductions plans just as much as it does those with no such plans. The net effect therefore is likely to be to reduce, not increase, economy-wide incentives to reach net zero.16 And our end state portfolio, consisting exclusively of firms with low and stable emissions, would by definition play little material role in driving future emissions reduction. I draw two conclusions from this. First, engagement beats disengagement.