The Governor of the Bank of England said firms should seek to decarbonise by collaborating with their emission intensive suppliers rather than getting rid of them.

Andrew Bailey said the financial sector has a “big role to play” in financing the climate transition as he spoke at the Net Zero Delivery Summit in London on Wednesday.

It comes as business leaders meet at the half way point between COP27 in Egypt and COP28 in Dubai later this year.

Mr Bailey argued that climate change is “highly predictable” – unlike pandemics or wars – and therefore there is “no excuse for failing to tackle it”.

However, he argued that businesses should collaborate and engage with their emission intensive suppliers rather than disengage with them completely in order to help create a pathway to phase out non-net zero assets in a “controlled way”.

“A firm could seek to reduce its emissions by disengaging from emission intensive suppliers but of course that doesn’t necessarily help to remove emissions from the economy,” he said.

“So the other, the preferable solution is engagement and collaboration.”

Mr Bailey said net zero will be delivered through businesses’ individual actions but progress can be accelerated by collaboration.

“So engaging with counterparties, suppliers and customers to build an understanding of the actions needed to transform their businesses from where they are today to align to a net zero world and access the funding needed to do it is important,” he added.

“It unlocks opportunities, it helps us by the way to price the risk accurately, which is important for financial markets to play that part, and to phase out assets not aligned to a net zero world in a controlled way.”

Mr Bailey also spoke about the importance of public authorities and governments to play their part in the transition.

He said the Bank of England’s role is to “ensure” that the financial system is resilient to the risks of climate change, especially while facing lower underlying rates of economic growth in many countries, including the UK.

“Transition to net zero is a major structural change that needs substantial investments and can over, quite obviously, quite a prolonged transition period helped to raise the potential growth rate of the economy and that’s a good thing,” he said.

“But of course, it can only do that if we plan it and get on with it and get it right, but that is the challenge and that’s a positive challenge, it seems to me.”

Mr Bailey added that “the primary levers for driving transition” rests with governments resetting climate policy, industries investing and innovating with private finance and consumers choices.

“Put like that, there’s a huge coordination challenge but I’m encouraged by the Government’s 2023 green finance strategy,” he said.

“We as the Bank of England have an important role. Our role is to ensure that the financial system is resilient to the risks from climate change, and that it’s well equipped to support that role in providing and allocating finance to support and achieve the transition to net zero.”

He later added the bank will do “everything we can to ensure that the infrastructure is built and put into effect that helps that transition to happen, that helps that disclosure, transparency, pricing and risk management.”