Climate change

Climate change, and society’s response to it, present financial risks relevant to the Bank’s objectives. The Bank of England is carrying out ongoing work to assess and respond to climate-related financial risks.

Latest updates

12 August 2019: We published the minutes for the second meeting of the PRA and FCA joint Climate Financial Risk Forum. For more information also see Insurance and banking supervision and climate change below.

2 July 2019: The Prudential Regulation Authority, the Financial Conduct Authority, Financial Reporting Council, and The Pensions Regulator, published a joint statement on climate change, in support of the launch of the Government’s Green Finance Strategy. The joint statement includes a message from Sam Woods, Deputy Governor for Prudential Regulation, and Chief Executive of the PRA.

22 May 2019: We published a report from a cross-industry working group ‘A framework for assessing financial impacts of physical climate change. A practitioner’s aide for the general insurance sector’.

Our response to climate change

We published an article in the June 2017 edition of our Quarterly Bulletin summarising the financial risks from climate change, and our strategy for responding to them. The article outlines the two core elements of the Bank’s response, motivated by its statutory objectives. The first involves promoting safety and soundness by enhancing the PRA’s approach to supervising the financial risks from climate change. The second involves enhancing the resilience of the UK financial system by supporting an orderly market transition to a low-carbon economy.

The Governor of the Bank of England, Mark Carney, and the executive sponsor of the Bank’s work in this area, Sarah Breeden, have discussed the financial risks from climate change, and the Bank’s response in various speeches

Speeches on climate change

 

Insurance and banking supervision and climate change

The Bank’s initial focus was on the insurance sector, when the PRA published a report on the impact of climate change on the UK insurance sector in September 2015.

PDFThe impact of climate change on the UK insurance sector

Subsequently, the Bank has completed a review of the UK banking sector, which was published in September 2018.

Transition in thinking: The impact of climate change on the UK banking sector

The report highlighted a transition in thinking is taking place across the sector from viewing climate change as a potential reputational risk to a core financial and strategic risk. 

Building on the insurance and banking reviews, on 15 April, the PRA published Supervisory Statement 3/19 ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’. This SS was published alongside Policy Statement 11/19, addressing the responses from CP23/18.

Supervisory Statement 3/19 ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’

The PRA has established a Climate Financial Risk Forum (CFRF) to build intellectual capacity and share best practice, co-chaired with the FCA. The CFRF brings together senior representatives from across the financial sector, including banks, insurers, and asset managers. The forum has set up four working groups to produce practical guidance on four specific topic areas: risk management, scenario analysis, disclosure, and innovation. The final outputs will be shared with industry more widely.

Full background and information for the launch of the CFRF is available in the Press Release for the first meeting of the PRA and FCA’s joint Climate Financial Risk Forum (March 2019). Summaries of subsequent meetings are available below:


Working with a group of representatives from the general insurance sector, the PRA published the report ‘A framework for assessing financial impacts of physical climate change. A practitioner’s aide for the general insurance sector’. The paper outlines a framework for practitioners to use to assess climate-related financial risks, using tools that are already available within the general insurance sector. The framework is intended as a possible starting point for firms to assess the impacts in the context of their business decisions and disclosure requirements.

International initiatives

Central Banks and Supervisors Network for Greening the Financial System (NGFS)

The Bank of England is a founding member of the Central Banks and Supervisors Network for Greening the Financial System. The Network was formed in December 2017, at the One Planet Summit in Paris. It was co-founded by eight central banks and supervisors, and, as of June 2019, has over 40 members and observers.

On 17 April 2019, the NGFS published its first comprehensive report, ‘A call for action – climate change as a source of financial risk’. This followed publication of its ‘First Progress Report’ in October 2018. The report sets out six recommendations for central banks, supervisors, policymakers and financial institutions to enhance their role in the greening of the financial system and the managing of climate and environment-related risks. Alongside the report, Mark Carney, Governor of the Bank of England, Francois Villeroy de Galhau, Governor of the Banque de France, and Frank Elderson, Chair of the Network for Greening the Financial System (NGFS) wrote an open letter on climate-related financial risks.

Sustainable Insurance Forum

The Bank also co-founded the Sustainable Insurance Forum (SIF). SIF is a global network of insurance supervisors and regulators, who are working together on sustainability challenges facing the insurance sector, including climate change.

Supporting enhanced disclosure

To allow markets to better assess, price and manage climate-related financial risks, the Financial Stability Board (FSB), at the request of G20 leaders, established the industry-led Task Force on Climate-related Financial Disclosures (TCFD). The Bank supports the TCFD, and has, for example, co-hosted a conference on scenario analysis in November 2017. 

The Bank has also committed to disclose an assessment of how it manages climate-related financial risks in its annual reporting, starting in 2019/20, as announced in the press release 'Bank of England to disclose assessment of how it manages climate-related financial risk in the 2019/20 annual report’. This disclosure will mirror the framework of the TCFD, setting out how the Bank integrates climate-related financial risks across its balance sheet and processes. 

Research on climate change

The Bank has engaged in several research activities on climate change. 

In May 2016, we published a Staff Working Paper on the impact of climate change on central banks. It examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives.

In July 2016, we held a joint workshop with the Met Office on climate risk and financial stability.

In November 2016, we held a joint conference, 'Central banking, climate change and environmental sustainability’ with the Council on Economic Policies.

In January 2018, we published a Staff Working Paper on climate change and the macro-economy. The review focused on the key theoretical and empirical modelling issues in the analysis of the macroeconomic risks deriving from climate change.

In May 2018, we published a joint article in Nature Climate Change on the climate change challenges for central banks and financial regulators. The paper presents the key controversies in the central banks and regulators’ response to climate change, and discusses potential areas for future research and policy.

On 29 January 2019, the Bank hosted an NGFS conference on ‘the Macroeconomic and financial stability impacts from climate change.’

Reducing our environmental impact

We are also committed to running our own operations responsibly and sustainably. Our Greener Bank programme is aimed at reducing the environmental impact of our day-to-day operations.

Corporate responsibility at the Bank

 
This page was last updated 11 December 2019
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