BoE bailout requires UK energy firms to have net-zero plans

Energy Markets Financing Scheme will also restrict shareholder payouts

The UK’s Energy Markets Financing Scheme, which opened for applications this week, will not allow firms to issue dividends, share buy-backs or bonus pay outs, and will require them to disclose their net-zero strategies.

The scheme is a joint endeavour from the Bank of England and the Treasury to provide short-term finance to UK energy firms facing liquidity issues during the current energy crisis.

Last week, campaign groups Positive Money and the New Economics Foundation (NEF) urged the Treasury not to give a “free pass” to those energy firms struggling due to an overreliance on fossil fuels.

“It is right that our public institutions use their balance sheet to respond to shocks – but they should also be using their financing capacity to help get us to net zero,” NEF economist Lukasz Krebel said at the time.

“They should use their policy interventions to create a more resilient energy system that ends the UK’s exposure to fossil fuel price shocks while enabling us to reach our environmental goals.”

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The announcement that the scheme will not allow energy firms to issue dividends, share buybacks, return of equity, discretionary bonus pay-outs, or make changes to senior management pay packages; and that energy firms listed in the UK must disclose whether they have a net-zero transition plan and, if so, deliver it to the Treasury within six months of drawdown on the facility or before termination of the guarantee, whichever is sooner, has therefore been welcomed.

In addition, all energy firms applying to the scheme are required to deliver proportionate climate-related financial information in line with the guidance of the Taskforce on Climate-related Financial Disclosures (TCFD) to the Treasury, within six months of drawdown of the guaranteed tranche of the credit facility or before termination of the guarantee, whichever is sooner.

For example, this should include information on the energy firm’s approach to the transition to a low emission world consistent with the TCFD guidance on targets, metrics and transition plans from October 2021.

Fran Boait, executive director of research at Positive Money, commented: “It’s good to see that the Bank of England and Treasury have learned the lessons of previous corporate bailout schemes and are finally getting serious about imposing conditions on companies accessing public funds.”

Boait added: “Now that policymakers have proved they can be more active in steering fossil-dependent energy companies, they should commit to establishing a financing facility to explicitly drive the UK’s transition towards clean energy. A ‘Clean Energy Financing Scheme’ could provide cheap finance to firms to invest in renewables, energy storage and grid capacity.”

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...