In early September, the Money, Macro and Finance Society – formerly known as the Money Study Group – came together for its 53rd annual conference at the University of Kent. Among the events was a discussion with Mervyn King, former governor of the Bank of England, and Paul Tucker, his former deputy, about the lessons learned over the past quarter century of monetary policy. This included a dominant issue of recent years: quantitative easing.
Along with the other then heads of the main central banks, King and Tucker were at the heart of the post-2008 policy of buying up government and corporate bonds to inject money into the economy. Now, several years on, they can only comment from the sidelines on when such a policy is appropriate to use and, by extension, what economic effect it is designed to achieve.
Those debates could consume 53 more annual conferences of the society, as academics and bankers wrestle with the idea that a policy which helped to alleviate the global credit crunch in 2008 may also have helped to fuel the current inflation crisis facing economies around the world.
But as they do, we at Global Witness hope they will find time for at least one session on another vital question arising from the use of QE: what did all that money go to fund?
In our new report, ‘Bankrolling Deforestation’, we show how the Bank of England, the Federal Reserve and the European Central Bank all purchased bonds from corporations heavily linked to deforestation and human rights abuses in tropical forested countries like Brazil and Indonesia.
Since 2020, the Fed in the US bought a combined total of $16m bonds issued by the Archer-Daniels-Midland Company, Bunge Ltd Finance Corp and Cargill, Inc. – all companies accused of involvement in environmentally destructive activity in climate-critical forests.
Meanwhile, in Europe, the ECB started a purchase programme in 2016 which involved the purchase of an undisclosed amount of debt issued by Bunge Finance Europe BV. The successors of King and Tucker at the Bank of England have purchased an undisclosed share in a £150m corporate bond issued by Cargill, Inc.
Detailed allegations against these companies – and their responses – can be found in ‘Bankrolling Deforestation’ and previous Global Witness reports such as ‘Seeds of Conflict’ and ‘Trading Risks’ as well as numerous reports from other organisations.
Of course, in the context of the vast QE programmes undertaken by all three central banks, these particular asset purchases will be just a drop in the ocean. And perhaps that would be their explanation as to why no one running those programmes stopped to think about where the money would go, and how it would be used.
That may be the calculation that Cargill, Bunge, ADM and all the other corporations frequently linked to deforestation rely on, namely that investors and customers are too concerned with their own profits to worry about how such big corporations grow theirs.
But surely the world’s biggest central banks have to hold themselves to a higher standard than the other businesses complicit in financing deforestation. They continually tell us that climate change is now among the risks to economic stability that they monitor as part of their mandates. They proudly announce when they conduct exercises to test the resilience of the financial system to climate-related shocks, such as flooding, drought or extreme heat.
However, that all looks somewhat hypocritical as long as their asset purchase programmes are directly contributing to those risks. It also sets the worst possible example for other banks and investors in the US, Europe and UK, and betrays the duty that all three central banks have to act in the wider public good.
At a time when the climate crisis is ravaging countries across the world, we hope our report will produce a consensus that it is simply unacceptable for the Bank of England, the Fed and the ECB to bankroll companies linked to the destruction of the rainforest.
And at a time of reflection within those banks and beyond about the way that monetary policy has operated in recent years, we hope they will take some time to assess the contribution it has made to the biggest crisis that we all face and make a commitment to avoid deforestation linked bonds in future. Because whatever QE was set up to achieve, it surely wasn’t the burning of our forests.
Veronica Oakeshott is Forest Team Leader at Global Witness.
This article was originally published in the Sustainable Policy Institute Journal, Autumn edition.