Climate change, the economy and financial system
Climate change affects our planet, our economy and our financial system. So it is relevant to the Bank of England’s central mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.
The rise in human activity – and the subsequent carbon and other greenhouse gas (GHG) emissions – since the industrial revolution has already had a considerable and measurable impact on our planet’s climate. Scientists estimate that global temperatures have risen by around 1°C since 1850, and could exceed 4°C by the end of this century if nothing is done to limit emissions.
For this reason, over 190 countries signed up to the Paris Agreement in 2015, which set out a global framework for combating climate change. Its primary goal is to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels. Over recent years, more than 130 countries have announced their ambitions to reduce emissions to net zero, with many, including the UK, setting legally binding targets.
Achieving these targets will require large-scale reductions in GHG emissions globally. Estimates by bodies such as the Intergovernmental Panel on Climate Change (IPCC) suggest that countries must have by 2050 to achieve this. The transition to net-zero emissions is affecting all countries, sectors, and involves unprecedented structural change to the global economy.
Financial and economic losses related to physical risks are also rising, although the magnitude and timing of these losses remains uncertain. As extreme weather events become more frequent and intense, they can also amplify traditional financial vulnerabilities and disrupt economic activity. To address this, the Bank is enhancing its risk assessment tools and scenario analysis capabilities to ensure the financial system remains resilient and able to absorb climate-related shocks.
The physical effects of climate change and the transition to a net-zero economy are relevant to our mission to maintain monetary and financial stability. In particular, when left unmanaged, these effects can pose a threat to the stability of the wider financial system, and the safety and soundness of firms we regulate.
The Bank’s climate work is spearheaded by two executives - James Talbot (Executive Director, International), who covers the Bank’s policy functions, and Vivienne Grafton (Executive Director, Central Operations), who covers the Bank’s physical operations.
Read speeches by members of our senior team to find out more about our response to climate change.