Our climate-related financial disclosures

Overview

We recognise the importance of decision-useful climate-related financial disclosure (climate discolsure) in enabling effective measurement, management and mitigation of climate-related financial risks (climate risks) across the economy. This is reflected in the inclusion of climate disclosure in our supervisory expectations, as well as the publication of our Climate Transition Plan in 2023 and the commitment we made in June 2020 to issue an annual climate disclosure. 

Our most recent climate disclosure sets out the progress we have made in our climate-related work since February 2024. It reports on:

• the climate risks, to which the Bank is exposed;
• the emissions associated with the Bank’s own financial and physical operations (considered a proxy for financial risk); and
• the Bank’s work on climate change in pursuit of its core mission.

Financial operations

Climate-related financial disclosure 2024/25

The Bank continues to demonstrate best practice in climate risk reporting on its financial asset holdings by disclosing analysis of its sovereign and corporate asset holdings, as well as some collateralised lending. Collectively, the Bank’s analysis suggests that its largest exposure - its sovereign bond holdings - continue to be exposed to material climate-related financial risks, but those risks remain lower than a G7 reference portfolio:

• Scenario analysis suggests that the value of the Bank’s sovereign bond holdings could fall by over 9% in the most adverse climate scenario. This assumes that markets immediately and fully price in the effects of a very adverse scenario on future interest rates and debt levels. However, these effects are uncertain and will be determined by the actions of governments, central banks and financial markets. 

• Implied Temperature Rise metrics for the Bank’s sovereign bond holdings are also well below the reference portfolio. 

A newly developed toolkit for assessing risks to counterparties in the Bank’s lending operations suggests that, under a set of conservative assumptions, transition risks could lead to a material impact on these counterparties’ CET1 ratio but would not threaten their solvency.

Alongside this work, the Bank is taking several steps to mitigate climate-related financial risks to residential mortgage collateral posted in the Sterling Monetary Framework. These approaches mitigate the Bank’s exposure to transition and physical risks facing owner-occupied and buy-to-let mortgage collateral.

Scenario analysis

In April 2024, the Bank published a Quarterly Bulletin that explores how central banks and financial institutions can use scenario analysis to measure climate-related financial risks. These risks are relevant to the Bank of England, given its significant financial operations. This article focuses on how financial institutions can ‘extend’ macro-climate scenarios to undertake asset-level analysis of financial risks, drawing on examples across sovereign bonds, corporate bonds and residential mortgages.

Greening the Corporate Bond Purchase Scheme

In March 2020, Governor Andrew Bailey outlined our intention to assess ways that our holdings of corporate bonds could be adjusted to take the climate impact of issuers into account while still meeting our monetary policy objectives.

Following a change to the Monetary Policy Committee (MPC) remit in May 2021, we set out in a Discussion Paper in May 2021 our proposals for ‘greening’ our Corporate Bond Purchase Scheme (CBPS). Andrew Hauser set out the approach proposed in this Discussion Paper in his speech: It’s not easy being green – but that shouldn’t stop us: how central banks can use their monetary policy portfolios to support orderly transition to net zero.

The purpose of this Discussion Paper was to seek feedback on the principles that might guide how best to incentivise transition to net zero via the CBPS; and the tools we might use to do it. It highlighted some of the key challenges and design choices and set out a number of questions on which we gathered feedback. 

In November 2021, we set out our approach to greening the CBPS. This followed the publication of a CBPS Discussion Paper, and subsequent engagement with a wide range of stakeholders including net zero investment experts, asset managers, climate groups and the wider public. The approach, published alongside a Market Notice, implements the principles set out in the Discussion Paper. Adjustments to the CBPS would commence from November 2021. A programme of reinvestment operations based on this framework was completed between November 2021 and January 2022. More information on this can be found in the Bank’s 2022 and 2023 climate-related financial disclosures. Following the MPC’s decision to begin exiting quantitative easing in February 2022, the CBPS has now been completely unwound.

Physical operations

We are committed to running our own physical operations responsibly and sustainably. Key milestones in our journey, include:

• 2020 - We set a target of reducing our absolute greenhouse gas emissions by 63% from 2016 to 2030, covering our Scope 1 emissions (use of natural gas, fuel and refrigerants), Scope 2 emissions (electricity) and travel emissions included within Scope 3 emissions. This level of reduction is consistent with aligning emissions from our physical operations to the goals of the Paris Agreement.
• 2021 - We committed to target net-zero greenhouse gas emissions from our physical operations more broadly by 2050 at the latest.
• 2022 - We committed to publish our transition plan for reaching this net-zero goal for our physical operations.
• June 2023 - We published our Climate Transition Plan, which announced the Bank’s commitment to reduce greenhouse gas emissions from its physical operations to net zero by 2040 and set out the Bank’s approach to deliver that commitment, including interim milestones. This '2040 Target' runs alongside the '2030 Target', which was set in 2020.

In addition to the Bank’s decarbonisation targets, we also run a Greener Bank programme aiming to reduce the environmental impact of the Bank’s day-to-day operations.