The Bank of England's climate-related financial disclosure 2021

The Bank published its climate-related financial disclosure in June 2021, which sets out the Bank’s approach to managing the risks from climate change across its entire operations.
Published on 17 June 2021


We have all been through a year like no other in recent history. While the Covid-19 (Covid) pandemic put our health and economic systems under enormous pressure, our environmental systems were afforded a brief respite.footnote [1] As we look ahead to a year marked by vaccinations and economic recovery, that respite may prove to be very short lived.footnote [2] It is therefore imperative that consumers, businesses, investors, and policymakers make informed choices that put us on the path to net zero through a green recovery. There are many challenges to solve to make this happen, but effective and widespread climate disclosure across the economy is an essential ingredient for success.

It is against this background that the Bank of England is publishing its second annual climate disclosure report, following the publication of its inaugural report in June 2020. We were one of the first central banks to make this step, and the first to include coverage of financial assets held for monetary policy purposes. I was delighted to see the Bank of England’s work on this report recognised through the Green Initiative award from Central Banking.

This year we have taken our report even further. We have refreshed our climate strategy, reflected updates to the remits given to our policy committees by government, further embedded climate change within our governance and risk management frameworks, made progress on reducing emissions from our physical operations, and enhanced our analysis of the climate risks in our financial asset holdings using the latest data and modelling techniques.

Despite the challenges posed by Covid, we have delivered on our climate commitments. One of the very first climate commitments I made was to the Treasury Select Committee at my appointment hearing in March 2020, where I set out that we would consider how our corporate bond holdings could be adapted to take the climate impact of issuers into account while still meeting our monetary policy objectives. In May 2021, we published a Discussion Paper on how we could do this, and we plan to start implementing our new approach before the end of this year. This is an unprecedented step for a central bank. We have also given banks and insurers until the end of this year to embed fully the climate-related supervisory expectations we set them in April 2019. In addition, following the innovative framework that the Bank of England published in December 2019, we have launched an exploratory exercise designed both to drive better management of climate risks and to assess the resiliency of UK banks, insurers and the wider financial system to different climate scenarios.

We have sought to deliver not just through our own actions but also in support of others. Internationally we continue to play a leading role in climate-focused groups such as the Network for Greening the Financial System and the Sustainable Insurance Forum, as well as the climate-related workstreams of the Financial Stability Board and standard setting bodies such as the Basel Committee on Banking Standards. We have also worked closely with the Government on the climate agenda more broadly, including supporting the UK’s presidency of the G7, the upcoming UN COP26 conference, and the development of a roadmap to mandatory climate disclosures across the UK economy.

This year’s report shows that emissions from our physical operations, such as powering our buildings, printing banknotes, and air travel, reduced by just over half in 2020. While this was in part due to the impact of Covid restrictions on air travel, the largest contribution to the reduction came from our shift to renewable electricity. We remain on course to meet our ambitious target of reducing emissions by 63% from 2016 to 2030, a level of reduction consistent with the goals of the Paris Agreement and industry best practice. In addition, this year we have gone further and made a new commitment to achieve net-zero emissions from our physical operations by 2050 at the latest.

In terms of our financial operations, the vast majority of our financial assets are held in UK government bonds, which, consistent with the emissions profile of the UK, have the second lowest carbon footprint of government bonds among G7 nations. Furthermore, we have been providing advice on the development of the UK Government’s green gilt framework, ahead of its planned issuance of sovereign green gilts. We also hold a portfolio of corporate bonds for monetary policy purposes. The composition of our corporate bond holdings is reflective of the underlying market and so the associated emissions are not yet aligned with the goals of the Paris Agreement. However, our new approach for managing our corporate bond holdings will, alongside the actions of other investors, create incentives for all companies to transition to net zero.

As we look ahead to a decade that climate science tells us must deliver real climate action, the Bank of England will continue to play its part. Key to our success will be turning novel climate-related work such as disclosures and supervisory expectations into business as usual operations. This year’s report represents another big step on that journey.

Andrew Bailey
Governor of the Bank of England

Statement by the Chair of Court

The interconnections between our planet, our economy, and our financial system have perhaps never been more visible than over the past year. Climate change will leave none of these untouched and so the ambition of our response as individuals and institutions must rise to the challenge. The Bank for its part has played a formative role in raising climate change to the top of central banks’ and regulators’ agendas, as well as the boardrooms of banks and insurers. This climate disclosure report sets out a comprehensive assessment of the risks climate change poses to the Bank’s mission and its plans to address them. I am very proud of the leadership the Bank has and continues to show on this issue both domestically and internationally as we embark on a decisive decade for climate action.

Bradley Fried
Chair of the Court of the Bank of England

Executive summary

Climate change affects our planet, our economy and our financial system. The Bank of England’s approach to climate change is to play a leading role, through our policies and operations, in ensuring the financial system, the macroeconomy, and the Bank of England itself, are resilient to the risks from climate change and supportive of the transition to a net-zero emissions economy. This disclosure report shows emissions from our physical and financial operations have continued to decline in recent years, but it is important we go further. With that in mind, we have become the first central bank to propose greening a monetary policy portfolio and have committed to reducing emissions from our own physical operations to net zero by 2050 at the latest. We will also continue to hold the firms we regulate to high standards by assessing their progress against our climate-related supervisory expectations and their resiliency to different climate scenarios in our recently launched Climate Biennial Exploratory Scenario exercise.

The Bank of England (the Bank) published its first climate-related financial disclosure report in June 2020. The Bank’s financial asset portfolios held for monetary policy purposes were included in the report, a first for a central bank, and led to the Bank receiving the ‘Green Initiative’ award from Central Banking.

This year’s report builds on the first by reflecting: the progress we have made on our climate work plan over the past year; changes in the remits and recommendations to the Bank’s policy committees; advances in climate data and modelling applied to our financial asset portfolios; progress on reducing emissions from our physical operations; and movement in the domestic and international climate agenda.

In response to these developments, we have refreshed our climate strategy and further embedded climate change into our internal governance and risk management frameworks. In addition, we have continued our work to reduce emissions from our physical operations such as powering our buildings, and are proceeding with plans to adopt a new approach to our holdings of corporate bonds in our financial operations that takes account of the climate impact of issuers.

Despite the significant progress to date, and reflecting the challenges climate change continues to present, the Bank’s climate work plan remains ambitious. We will focus our efforts on where we can make the biggest contribution domestically and internationally, while fulfilling the obligations under our remits and mandate.

As with our first climate disclosure report in 2020, this year’s report follows the structure recommended by the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosures (TCFD), covering four key elements: governance; strategy; risk management; and metrics and targets.


Climate-related risks (hereafter ‘climate risks’) are incorporated within the Bank’s internal governance and risk management frameworks, complemented by climate-specific processes where appropriate. As part of this, climate risks are discussed regularly at the Bank’s senior executive committees prior to decisions being implemented by management across the Bank. To ensure there are clear roles and responsibilities, the Bank has assigned an Executive Sponsor for climate change – this position is held by Sarah Breeden, Executive Director for UK Deposit Takers Supervision. In 2021, the Bank also assigned the Executive Sponsor the Senior Management Function (SMF) responsibility for climate change, consistent with our supervisory expectations of banks and insurers. Alongside Sarah Breeden, the Bank has appointed Chief Operating Officer, Joanna Place, as Executive Committee Sponsor for climate change across the Bank’s internal operations. Furthermore, in 2020 an Executive Directors’ Climate Steering Group was established to facilitate cross-organisational discussions on climate change.


The risks from the physical effects of climate change and the transition to a net-zero economy are relevant to the Bank’s mission to maintain monetary and financial stability. In particular, these risks pose a threat to the stability of the wider financial system, and the safety and soundness of firms we regulate. As such, climate change continues to be a strategic priority for the Bank. Our objective is to: ‘play a leading role, through our policies and operations, in ensuring the financial system, the macroeconomy, and the Bank are resilient to the risks from climate change and supportive of the transition to a net-zero economy’.

This objective is underpinned by recent clarifications of the relevance of climate change and the transition to a net-zero economy in the remits and recommendations letters of the Bank’s policy committees, as set by the Chancellor of the Exchequer.

Our climate strategy is built around playing our part across five key goals:

Delivering against these priorities, as set out in the Strategy chapter of this report, will fulfil the Bank’s role in building system-wide resilience and supporting the transition. We will assess our progress against these priorities.

Risk management, metrics and targets:

The Bank is itself exposed to climate risks across both its physical operations (eg emissions from its buildings and travel) and its financial operations (eg financial asset portfolios held for monetary policy purposes). This report sets out our measurement and management of these risks.

This year the Bank has added climate risk as a ‘key risk’ within its risk management framework, becoming part of the Bank’s standard procedures for assessing and reporting material risks to the Bank’s Audit and Risk Committee on a quarterly basis. The metrics reported may evolve over time to reflect the fast pace of development in the field.

The Bank’s financial operations:

The Bank seeks to demonstrate best practice for transparency over climate risk by undertaking and disclosing climate risk analysis across the entirety of its financial holdings, including portfolios held for policy purposes. By far the largest proportion of these holdings (97%) are in a separate legal vehicle, indemnified by HM Treasury, to implement the Monetary Policy Committee’s (MPC’s) asset purchase programme. This is known as the Asset Purchase Facility (APF). Of this, 98% is invested in UK sterling government bonds (gilts) and the other 2% in sterling corporate bonds, purchased by design in proportion to total outstanding sterling corporate bond issuance in eligible sectors – delivering a portfolio broadly reflective of the market.

Carbon emissions associated with these holdings have fallen compared with last year’s report. This does not reflect the large but temporary economy-wide reduction in emissions associated with Covid lockdown restrictions in 2020, as lags in emissions reporting mean the carbon intensity data used predate that period. We measure these emissions using the weighted average carbon intensity (WACI) metric recommended by the TCFD. The WACI for the APF gilt portfolio was 222 tonnes of carbon dioxide equivalents per £ millions of GDP (tCO2e/£m GDP) – materially below a G7 reference portfolio of 384 – and down 3% on a year earlier. The WACI of the APF corporate bonds portfolio (known as the Corporate Bond Purchase Scheme (CBPS)) was 251 tCO2e/£m revenue – in line with the sterling corporate bond market overall – and down 9% year on year, reflecting reductions in emissions from corporate issuers.

But current emissions alone provide only a partial basis for assessing risks in financial asset holdings from climate change. Estimates of how forward-looking emissions are aligned with net-zero goals are also vital to understanding the scale of possible transition and physical risks. This year’s report improves and extends our use of these measures in three main ways: first, by presenting an updated range of static metrics of transition and physical risk exposure; second, through revised analysis of the rise in temperature consistent with the carbon emissions from our corporate holdings; and, third, through new scenario analysis to illustrate the financial risks that might stem from transition and physical risk exposures.

Static measures of exposure to physical and transition risks remain broadly similar to those in last year’s report. The transition risk of holding ‘stranded assets’ is low across the Bank’s sovereign and corporate bond holdings, reflecting among other things the limited reliance on revenues from fossil fuel extraction.footnote [3] New broader measures of transition risk in our corporate holdings also appear moderate. The overall physical risk exposure of our sovereign bond holdings remains lower than for many developed countries; within that, the greatest exposure is to risks from flooding and sea level increases. Physical risks to our corporate holdings are broadly unchanged year on year and remain moderate, with higher risks driven by exposure to overseas supply chains.

Implied Temperature Rise (ITR) metrics provide one estimate of the temperature increase above pre-industrial levels with which financial asset holdings are aligned. But such measures are dependent on, and so sensitive to changes in, their assumptions and methodologies. The estimated warming of our CBPS portfolio will track that of the sterling corporate bond market given its design. One estimate has fallen year on year, from 3.5°C to 3.0°C – though this fall entirely reflects methodology improvements and remains outside of Paris-aligned goals. Other less complex methods explored in this year’s report compare firms’ published plans with Paris-aligned goals, and similarly underline the need for a whole-economy transition. In light of these findings, and following an update to the MPC’s remit earlier this year, the Bank has recently issued a Discussion Paper proposing a new framework for how our investment approach could be adjusted to support incentivising corporates in this market to transition in line with the Government’s net-zero objectives.

This year for the first time we have used scenario analysis to estimate the financial risks from transition and physical risks in our corporate holdings under different forward-looking scenarios. For transition risk, we have included estimates of how different policy measures to address climate change could affect corporate valuations. Unsurprisingly, these suggest that valuations will be affected more negatively when these policies are introduced after a delay, because the policies will then need to be tougher to meet net-zero goals. For physical risk, we have included estimates of how different scenarios may impact on probabilities of default on corporate debt securities. This analysis suggests that probabilities of default could more than double through this channel, under a scenario in which no additional policy actions are taken to reduce global emissions. These estimates remain illustrative and subject to significant uncertainty at this stage; but engaging with this type of analysis is an essential step in building the capacity to manage the forward-looking risks to financial asset holdings that arise from climate change over the longer term. The TCFD views the evolution of this kind of scenario analysis as central to improving the quality of climate disclosures over time and as ultimately supporting a more appropriate pricing of risks and allocation of capital.

The Bank’s physical operations:

The Bank tracks its carbon footprint from its physical operations. In 2020/21 the footprint reduced by 53% from 22,916 tonnes of carbon dioxide equivalent emissions (tCO2e) to 10,843 tCO2e; the largest decrease in the carbon footprint in a single year since it was first calculated in 2015/16.

The most significant contribution to the emissions reduction was due to the Bank’s shift to renewable sources of electricity, which we will continue to benefit from in future years. The remainder of the reduction in emissions was primarily attributable to the fall in air travel due to Covid restrictions. Although we expect some of this reduction to unwind through the course of 2021/22 as Covid restrictions are relaxed, we anticipate air travel will resume at a lower level than in previous years, with colleagues joining meetings remotely more often.

The majority of the Bank’s carbon footprint in 2020/21 came from either natural gas usage (24%) or polymer substrate used in the production of banknotes (68%). Emissions due to polymer have, however, fallen in the past year, as a result of lower production volumes and carbon-reduction initiatives implemented by suppliers. The climate impact of the Bank’s natural gas usage has been partially mitigated by the installation of a new integrated energy monitoring system, facilitating optimisation of energy use within the Bank. The Bank remains on track to meet its ambitious 2030 carbon target to reduce absolute greenhouse gas emissions by 63% from 2016 to 2030.footnote [4] This target has been verified by the Carbon Trust as in line with the reduction in emissions needed to be consistent with limiting the rise in global average temperatures to 1.5°C above pre-industrial levels.

Beyond its 2030 carbon target, the Bank has also committed, for the first time, to reduce emissions from its physical operations to net zero by 2050 at the latest. This net-zero carbon target will cover the full scope of the Bank’s physical operations and is consistent with the target in the Climate Change Act 2008.

Chapter 1: The Bank’s approach to disclosure

The disclosure of climate risks and opportunities by companies helps to address climate data gaps and enables consumers, businesses, investors, and policymakers to make informed decisions. These disclosures are therefore a critical step on the path to a net-zero emissions economy. Accordingly, the Bank of England (the Bank) has sought to promote the adoption of clear, consistent and comparable climate disclosures.

Recognising the role the Bank plays at the heart of the financial system, in this report we are disclosing our own approach to climate risk management across our operations. It builds on our first climate disclosure report published in June 2020. A summary of this year’s disclosure report has also been included in our 2021 Annual Report.

We have carefully considered our approach to climate disclosure as a central bank and set out some of our key design choices below:

Framework and scope

As with our 2020 report, we have chosen to follow the structure and framework recommended by the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosures (TCFD) where appropriate. This is the main framework for companies to disclose key climate-related information. It focuses on four core elements: governance; strategy; risk management; and metrics and targets. Its recommendations provide a foundation to improve visibility of climate risks and opportunities. This report covers each of the TCFD core elements in turn, with the aim of setting out how the Bank currently considers climate risks across its governance, strategy and risk management. We also describe the metrics and targets that the Bank uses to monitor and manage those risks.

Figure 1.1: Core elements of the TCFD recommendations


  • Source: Bank of England.

The Bank is an official supporter of the TCFD recommendations. In November 2020, the Bank, alongside others in the joint Government-Regulator TCFD Taskforce,footnote [5] set out a roadmap towards mandatory TCFD-aligned climate disclosures across the UK economy. Furthermore, when the IFRS Foundation consulted on establishing a Sustainability Standards Board in November 2020, in publicly supporting the proposals, the Bank recommended that to promote global consistency, future global sustainability standards should build on the framework and recommendations of the TCFD.

We have sought to make our disclosure as wide-ranging as practical, including both the Bank’s financial and physical operations, as well as our governance, strategy and policy activities.

Data and methodological challenges

Wherever possible we have used the latest data and techniques available, taking care to highlight the associated challenges and consequent assumptions. Widespread disclosure of climate risks will, in and of itself, improve the availability of data and accelerate the development of new metrics and risk assessment methodologies. It is therefore important that organisations start to disclose their climate risks even where there are gaps in data and techniques. We learned a great deal from the work we did to prepare our first climate report in 2020, and have built on that experience to further improve the metrics and methodologies used in this report.

As with last year, we have engaged external data providers to support our analysis of the climate risks in our financial asset holdings in particular. Where techniques have developed since last year’s report, we have restated metrics in order to make use of improved methodologies while also being able to describe how the metrics have changed since the previous report. Box B sets out some of the main changes in methodologies and how some of the more innovative techniques used should be thought of at this stage as providing an approximation of the risks facing the Bank’s holdings, while estimation methods develop and become more robust. The Bank is actively involved in multiple domestic and international initiatives that aim to bridge current climate data gaps and increase standards and consistency of climate risk modelling.

Chapter 2: Governance

Climate risks touch all areas of the Bank, and as such it has been embedded across the Bank’s existing governance and risk functions. However, there are inherent idiosyncrasies in the nature of climate risks and our response to them, which mean that some climate-specific structures are still required. We set out below how climate-related governance is applied across the Bank.

Governing bodies

Figure 2.1: Organogram illustrating Bank committees and steering groups relevant to the governance of the Bank’s work on climate change (a)(b)(c)(d)(e)(f)


  • Source: Bank of England.
  • (a) The Bank’s Court of Directors (Court), while reserving certain key decisions to itself, has delegated to the Governor the day-to-day management of the Bank. The Governor delegates certain decisions to individuals or committees within the Bank, and takes advice on others. The principal forums for such advice are the Executive Committee (ExCo) and its sub-committees: Policy Co-ordination Committee (PCC), Executive Risk Committee (ERC) and Executive Operations Committee (EOC).
  • (b) Joanna Place is Chief Operations Officer and Executive Committee Sponsor for climate change across the Bank of England’s internal operations.
  • (c) Sarah Breeden is Executive Director of UK Deposit Takers Supervision and Executive Sponsor for climate change across the Bank of England’s policy functions.
  • (d) Andrew Hauser is the Executive Director of Markets, the directorate responsible for leading the Bank of England’s market operations and analysis of the climate impact of the Bank of England’s financial asset portfolios.
  • (e) The Audit and Risk Committee (ARCo) is a sub-committee of Court.
  • (f) The Executive Directors’ Climate Steering Group (EDCSG) can make recommendations to, and review papers prior to going to, the ERC, EOC, PCC, ARCo, and other Bank committees where relevant. The EDCSG is not a formal Bank committee or decision-making body.

Our Court of Directors (Court), which acts as a unitary board, sets the Bank’s strategy and budget, and takes key decisions on resourcing and appointments. Court is responsible for matters that concern the Bank as an organisation, while policy responsibilities are reserved for policy committees. The Audit and Risk Committee, a sub-committee of Court, assists Court in its responsibility for maintaining effective risk management, internal controls and financial reporting. In line with these responsibilities, both Court and the Audit and Risk Committee discuss the Bank’s approach to climate risk management and disclosures. In April 2019, Court took the decision to publish a disclosure in line with the TCFD recommendations to promote transparency around the Bank’s exposure to, and management of, climate risks. At a minimum, Court reviews the Bank’s progress against climate-risk targets on an annual basis as part of its review of the Bank’s Annual Report.

Our Executive Committee is the most senior policy-making body beneath Court. The Executive Committee, and where relevant its sub-committees, have reviewed and approved our climate strategy.

The Bank’s three statutory policy committees are the Monetary Policy Committee (MPC), the Financial Policy Committee (FPC), and the Prudential Regulation Committee (PRC). The Chancellor of the Exchequer sets the remits and recommendations letters of the Bank’s policy committees. In March 2021, these were updated to include, among other things, the Government’s economic strategy for a ‘transition to an environmentally sustainable and resilient net-zero economy’. We set out the implications of these changes in the Strategy chapter of the report.

Executive sponsorship

The Bank voluntarily complies with the core principles of the Senior Managers Regime. In line with the Prudential Regulation Authority’s (PRA’s) supervisory expectation that banks and insurers assign a Senior Management Function (SMF) responsible for the financial risks from climate change, the Bank has allocated this responsibility to Sarah Breeden, Executive Sponsor for climate change and Executive Director of UK Deposit Takers Supervision. The Executive Sponsor and SMF holder is responsible for recommending the Bank’s climate change strategy to the Executive Committee, overseeing its execution, and co-ordinating climate-related work across the Bank. Alongside Sarah Breeden, the Bank has appointed Chief Operating Officer, Joanna Place, as Executive Committee Sponsor for climate change across the Bank’s internal operations.

As climate-related work has become embedded across the organisation, a new group, the Executive Directors’ Climate Steering Group, was established in 2020 to ensure effective co-ordination on climate-related work across the Bank. This group acts as a forum for Executive Directors to discuss climate-related issues and has been active in supporting Court and the Bank’s executive and policy committees in their work on climate change.

Chapter 3: Strategy

The Bank’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. Climate change is relevant to our mission as the physical effects of climate change (eg sea-level rises and more frequent severe weather events) and the transition to a net-zero economy (eg changes in government policy, consumer preferences, and technology) create financial risks and economic consequences. These risks and consequences can affect the safety and soundness of the firms we regulate, the stability of the wider financial system, and the economic outlook.footnote [6] For these reasons the risks from climate change and the transition to a net-zero economy continue to be a strategic priority for the Bank.

The objective of the Bank’s work on climate change is to:

‘Play a leading role, through our policies and operations, in ensuring the financial system, the macroeconomy, and the Bank are resilient to the risks from climate change and supportive of the transition to a net-zero economy.’

We build this resilience and support the transition by ensuring that climate-related financial risks are proactively managed and pre-emptively mitigated through our policy functions (eg our supervision of banks and insurers) and the Bank’s management of its own operations (eg the carbon footprint of our buildings and corporate bond holdings).

This year we have updated our climate strategy to reflect the significant progress we and others have made to date, the recent changes to our policy committees’ remits, and the new opportunities presented by the UK’s presidency of the G7 and hosting of the UN COP26. We have articulated this climate strategy in playing our part across five key goals:

Managing risks in line with our remit

Climate risks have a direct impact on the delivery of the Bank’s core policy objectives and so have driven a range of policy actions to build resilience across the financial system. The importance of this work has been recognised by the Government in updates to the remits and recommendations of all three of the Bank’s policy committees. For example, noting that the Government’s economic strategy, which the committees have regard to, includes ‘structural reform…to transition to an environmentally sustainable and resilient net-zero economy’ and maintaining a ‘financial system that supports…the transition to a net-zero economy’. These updates reinforce the work we have undertaken to date and our forward work-plan, further details set out below:

Financial Policy Committee – In March 2020, the FPC’s remit and recommendations were updated to note that the FPC should ‘continue to regard the risks from climate change as relevant to its primary objective’, and that in the context of its secondary objective, the FPC ‘has a role to play in seeking to support the Government’s Green Finance Strategy…’. The Bank’s work on climate change has been consistent with these changes, including the development of the Climate Biennial Exploratory Scenario (CBES) exercise and the Bank’s contribution to the UK joint regulator and Government TCFD Taskforce on mandatory climate disclosure.

In March 2021, the FPC’s remit and recommendations were updated again to include the Government’s revised economic strategy. They also recommended that the FPC ‘consider the potential relevance of other environmental risks to its primary objective’. The financial risks that might arise from these wider environmental risks, such as biodiversity loss, are not currently well understood, and so the Bank will progress plans to explore them and consider the extent to which they may pose a threat to UK financial stability.footnote [7]

Monetary Policy Committee – The MPC’s remit was updated in March 2021 to note the Government’s revised economic strategy. This is the first time that the MPC remit has specifically considered climate change. In response, the Bank intends to adjust the way it manages the Corporate Bond Purchase Scheme (CBPS) to take account of the climate impact of issuers of the corporate bonds it holds.footnote [8]

Prudential Regulation Committee – The PRC’s recommendations were updated in March 2021 to include the Government’s revised economic strategy and note that the PRC should ‘have regard to the Government’s commitment to achieve a net-zero economy by 2050 under the Climate Change Act 2008 (Order 2019) when considering how to advance its objectives and discharge its functions’. Similar wording is used in the Financial Services Act 2021, which amends the Financial Services Markets Act 2000, with respect to the PRA’s rulemaking powers when implementing Basel standards and subsequent Capital Requirements Regulation (CRR) rules.footnote [9] The PRA has for some time recognised the risks posed by climate change and the transition to a net-zero economy to the safety and soundness of the firms it regulates. Consequently, these changes to the PRC’s recommendations are consistent with the existing climate work plan of the PRA, including assessing firms against its supervisory expectations.

The Bank’s work against its strategic goals

(1) Ensuring the financial system is resilient to climate-related financial risks

The Bank is using its micro and macroprudential toolkits to build resilience to climate-related financial risks at both an individual firm and system-wide level.

In April 2019, the PRA became the first prudential regulator to publish a comprehensive set of supervisory expectations for how banks and insurers should enhance their approaches to managing the financial risks from climate change. These expectations are designed to ensure firms adopt a strategic approach to managing climate-related financial risks. In summary, the PRA expects firms to: embed climate risk into their governance framework; incorporate climate risk into existing risk management frameworks; undertake longer-term scenario analysis to inform strategy and risk assessment; and develop an appropriate approach to climate disclosure in line with the TCFD framework. We followed this up in July 2020 with a Dear CEO letter providing additional guidance for firms on meeting our expectations, giving industry feedback on progress to date, and setting a deadline for firms to embed fully our expectations by the end of 2021. The PRA’s supervisory focus for 2021 will be on monitoring and engaging with firms on their progress against the supervisory expectations in the lead up to the deadline at the end of the year.

Since the launch of its supervisory expectations, the PRA has actively engaged with financial firms to build a shared understanding of its expectations on climate change and support efforts by firms to develop their capabilities. Furthermore, in March 2019, the PRA and the Financial Conduct Authority (FCA) co-convened the Climate Financial Risk Forum (CFRF), an industry group established to share best practice on climate issues. In June 2020, the CFRF published a guide for the financial sector containing practical tools, information and case studies on climate risk management, scenario analysis, disclosure, and innovation. This work continues in 2021, with a focus on developing additional frameworks and tools for use by firms and includes a new workstream on climate data and metrics.

The PRA took similar steps to support general insurers’ ability to quantify the impact of physical risks. Working with a group of representatives from the general insurance sector, in May 2019 the PRA published a framework for assessing financial impacts of physical climate change. The paper provides an aid for practitioners to use to assess climate-related financial risks, using tools that are already available within the general insurance sector. The framework is designed as a starting point for firms to assess the physical risk impacts in the context of their business decisions and disclosure requirements. In 2020, the PRA considered the feedback provided and reflected on how to address it within the context of the Bank’s current and future climate workstreams. The Bank has issued a response summarising the main feedback points received and areas where further development is recommended.

Building on lessons learned from the climate exploratory exercise in the 2019 Insurance Stress Test, the Bank announced in December 2019 a framework for assessing the resilience of individual banks, insurers, and the wider UK financial system to three different climate scenarios through a Climate Biennial Exploratory Scenario exercise. These scenarios are based on those published by the international central banks and supervisors Network for Greening the Financial System (NGFS). The objectives of the CBES are to: (1) size the financial exposures of individual firms and the financial system to climate change; (2) understand how firms might respond to different climate scenarios and the impact on their business models; and (3) improve firms’ management of the financial risks from climate change. The benefits of the CBES exercise will go well beyond the results generated. In carrying out the exercise, firms will need to reach out to their counterparties, to understand better their climate risks and plans to address them. This should help prompt further disclosure and climate action by businesses across the real economy, as well as filling some critical climate data gaps. Firms may also use the design of the CBES and the underlying NGFS scenarios to inform their own scenario analysis, build their understanding of the climate risks they face, and enhance their climate risk management capabilities.

(2) Supporting an orderly economy-wide transition to net-zero emissions

The primary levers for driving an orderly economy-wide transition to net-zero emissions rest with government setting climate policy, industry driving innovation and climate action, private investors allocating capital and consumers making choices about their spending. But as highlighted in the recent changes to the policy committees’ remits, the Bank, through its policies and operations, can complement, catalyse and amplify as government develops and sets out its plans. Clarity over the transition paths for each sector will better allow the UK economy to adjust effectively, reducing the risks of a later, sharper, and more disorderly transition.

The Bank chairs the macrofinancial workstream of the NGFS which is leading the development of climate scenarios for central banks and policymakers. These scenarios assess the financial and economic impacts of different possible temperature pathways and climate policy actions consistent with those outcomes. They aim to set out what transition means in practice, providing a key tool to enable firms and policymakers to take practical steps today based on the risks they face from climate change under different climate scenarios. As such, the development of frameworks to undertake scenario analysis, and the development of the climate scenarios themselves, are central to the Bank’s strategy to support the transition. As noted previously, the Bank is also using these scenarios in its upcoming CBES exercise.

While effective climate risk management and scenario analysis should in and of itself support the transition, the Bank can also use its work to create conditions that help facilitate investment in the transition. For example, the Bank, alongside HM Treasury and the FCA, has convened an industry working group to facilitate investment in productive finance. While this work is currently sector-agnostic and considers a broad range of assets, unlocking financing for longer-term and less liquid assets could also benefit productive sustainable investment in areas such as green technologies and renewable energy infrastructure. The impact on sustainable investment will be kept under review as the working group progresses.

Looking ahead, the Bank will seek, where appropriate, to support effective standards, frameworks, and initiatives in areas such as climate data and green finance. Bridging climate data gaps, improving access to climate data sets, and establishing common climate data standards are critical to enabling effective reporting and disclosure. They also support the development of more advanced and useful climate metrics. The Bank is involved in several of these initiatives, for example we are part of the NGFS and FSB workstreams on climate data gaps, and are considering including climate data as a topic of interest in our work on data transformation in the financial sector. In addition, the Bank is supporting the work of HM Treasury and the department for Business, Energy and Industrial Strategy (BEIS) on the development of the UK green taxonomy.

(3) Promoting adoption of effective TCFD-aligned climate disclosure

We have supported the adoption of the disclosure framework established by the TCFD since its inception. The information in these disclosures needs to be consistent, comparable and comprehensive to be useful. Disclosure is important not only for transparency and for risk management purposes, but also as a way to enable the flow of capital towards investments that are consistent with an orderly economy-wide transition to net-zero emissions. Consequently, it is also integral to the UK’s legislative commitment to reach net-zero emissions by 2050.

On 9 November 2020, the UK joint regulator and government TCFD Taskforce, of which the Bank is a member, published an interim report and roadmap for mandatory TCFD-aligned disclosure requirements across the economy by 2025. These requirements are complemented by the PRA’s existing supervisory expectation that banks and insurers should report their climate-related financial risks as part of their public disclosures.

Climate risks are global and therefore the coherence and consistency of disclosure requirements and sustainability standards across jurisdictions is important for promoting effective risk management and supporting climate action. In light of this need, the Bank is supportive of multilateral work including the G20 and FSB exploring ways to promote globally comparable, high-quality and auditable standards of disclosure based on the TCFD recommendations, including the IFRS Foundation Trustees’ proposal to establish a Sustainability Standards Board (SSB) for the development of global sustainability reporting standards. We believe the focus of this work should initially be on the climate-related financial disclosures most relevant to investors and other market participants, building on the framework developed by the TCFD.

The Bank is also supportive of the development of forward-looking metrics which take into account the future emissions associated with companies’ activities. We are engaging with a number of international bodies, private sector and non-profit groups developing such metrics and associated frameworks. Looking ahead, we will play our part in rolling out the mandatory disclosure roadmap, progressing the development of metrics, and supporting the establishment of the IFRS SSB.

(4) Working towards a timely and co-ordinated international approach to climate change

The consequences of climate change, effectiveness of climate policy, and need for a robust understanding of climate risks, are not solely domestic concerns. They must therefore be delivered in a co-ordinated and timely fashion at an international level. The Bank can support this through its work with other central banks, through prominent roles in international fora, and by working with Government to deliver on its G7 and COP26 agendas. The Bank also provides training to other central banks and regulators on topics including climate-related financial regulation through the Bank’s Centre for Central Banking Studies.

The Bank is a founding member of the NGFS and sits on the steering committee. The NGFS was co-founded by eight central banks and supervisory authorities in December 2017. As of June 2021, membership has grown to 91 members and 14 observers representing countries responsible for around 85% of global greenhouse gas emissions and 88% of global GDP. Through the NGFS the Bank aims to share its own experience, learn from others, and promote consistent and effective responses to climate risks by central banks and supervisors across the world.

The Bank also co-founded the Sustainable Insurance Forum (SIF) to advance supervisory responses to climate change in the insurance sector across the globe. SIF is a global network of insurance supervisors and regulators working together on sustainability challenges facing the insurance sector, including climate change. In 2020, the SIF published a climate-related question bank for insurance supervisors and, alongside the International Association of Insurance Supervisors (IAIS), published a landmark draft paper on the supervision of climate risks in the insurance sector. Anna Sweeney, Executive Director of Insurance Supervision at the Bank, is the chair of the SIF and Vicky Saporta, Executive Director of Prudential Policy at the Bank, is chair of the IAIS.

In addition to these climate-focused fora, the Bank is also actively engaged in the climate-related workstreams of standard setters and international bodies. For example, the Bank is actively contributing to the climate-related work of the Basel Committee on Banking Supervision (BCBS)footnote [10] and the FSB.

The G7, the G20 and COP26 provide an opportunity to make progress on key climate-related financial sector issues internationally. Under the UK presidency, the G7 has started meaningful discussions on the role of finance ministries and central banks in the transition to net zero, including how climate policies can help mobilise private finance to support the transition. The Bank is also actively involved in the G20, both through the work of the FSB on disclosures and regulatory approaches to climate risks, and the Sustainable Finance Working Group, through its development of a climate-focused G20 sustainable finance roadmap. In addition, the Bank is supporting the work of the COP26 Private Finance Agenda in the lead up to the COP26 conference. Looking ahead, the Bank will continue to play an active role in international fora to push for addressing climate risks at a global level.

(5) Demonstrating best practice through our own operations

The Bank holds itself to the same high standards that it holds the firms it regulates and the financial system it oversees. As such, the Bank will ensure its own operations conform to best practice in the measurement, management and mitigation of climate risks. This includes emissions from both our physical activities (such as our buildings, production of banknotes, and travel) and our financial market operations. The Bank has considered how its approach to its own operations, where relevant, compares to the supervisory expectations it has set for PRA-regulated banks and insurers.

Table 3.A: Comparison of the Bank’s actions to the PRA’s supervisory expectations for managing the financial risks from climate change as set out in SS3/19

Supervisory expectations under SS3/19

Actions the Bank has taken consistent with these expectations


– Established a Bank-wide climate strategy signed off by the Executive Committee.

– Assigned SMF for climate change to Sarah Breeden, the Bank’s Executive Sponsor for climate change.

– Established an Executive Directors level climate steering group as support to the Bank’s wider governance framework.

Risk management

– Incorporated climate risks within Bank-wide risk management framework.

– Key climate risk metrics included in risk monitoring pack presented to the ERC and the Bank’s Court of Directors Audit and Risk Committee.

Scenario analysis

– Will explore the extent to which the results from the CBES can inform our approach, and continue to deepen the range of forward-looking scenario-based analyses that we carry out on our own balance sheet.


– Produced TCFD-aligned climate disclosure report, approved for publication by the Bank’s Court of Directors.


  • Source: Bank of England.

In relation to our physical operations, we are on track to meet our ambitious 2030 carbon target to reduce the Bank’s greenhouse gas emissions by 63% from 2016 to 2030, covering Scope 1 emissions (use of natural gas, fuel and refrigerants), Scope 2 emissions (electricity) and travel emissions (which are classified as Scope 3). This target is externally verified, informed by the Science Based Target (SBT) methodology and is consistent with reductions needed to ensure our emissions from these activities are aligned with Paris goals. The Bank has gone further this year and made a commitment to achieve net-zero greenhouse gas emissions from its physical operations by 2050 at the latest. Further details on emissions from our physical operations are set out in Chapter 4.

For our financial operations, as previously noted, the Bank intends to adjust its approach to purchasing corporate bonds in the CBPS, a financial asset portfolio held for monetary policy purposes, to take into account the climate impact of issuers. In addition, the Bank’s pension trustees’ have committed to have regard to climate risks when making future investments, and the fund will publish its own TCFD-aligned disclosure from 2022.

Chapter 4: Risk management, metrics and targets

Risk management

The Bank has a risk management framework that spans all of the Bank’s functions, and includes climate risks. This framework sets out how risks (including those related to climate change) are identified, assessed, managed, monitored and reported. It is underpinned by a Risk Taxonomy, an internal classification of risk types, which all areas of the Bank use to categorise their risks. Metrics of the type shown in this report are reported regularly to the Bank’s risk committees.

Each risk type has an Executive Sponsor, who, supported by the Bank’s second line risk function, is responsible for: defining the set of risk metrics and tolerances; monitoring and reporting them; and, where appropriate, co-ordinating the timing and implementation of mitigants.footnote [11] Development of the climate metrics drew on expertise across the Bank, aiming to capture the full range of climate risks to which the Bank is exposed. The metrics reported will be refreshed periodically, reflecting the pace of development in the field and frequency of reporting of underlying data.

We use the risk framework to monitor exposure to climate change and how it could impact the resilience of our financial and physical operations. To help us analyse climate risk in both these areas, we focus on two transition channels:

  • Transition risks arise from the adjustment towards a net-zero economy, which will require significant structural changes to the economy. Changes in policy, technology and shifting consumer preferences and interpretations of the law could prompt a reassessment of the value of a large range of assets. In turn, this will give rise to credit risk for lenders and market risk for insurers and investors. The resultant risks would be more pronounced in the case of a sudden adjustment and could, dependent on scale, be a source of financial instability.
  • Physical risks arise from changes in the long-term climate and the increasing severity and frequency of weather events. Physical risks can damage property and other infrastructure, disrupt business supply chains, impact human working conditions and health and, more broadly, can lead to internal displacement and conflict. This reduces asset values, results in lower profitability for companies, damages public finances, and increases the cost of settling underwriting losses for insurers. Indirect effects on the macroeconomic environment, such as lower output and productivity, exacerbate these direct impacts.

Our approach to risk management is influenced by three distinct characteristics, which we see in both transition and physical climate risk, and which mean that addressing climate risks presents unique challenges:

  • The impact is far-reaching in breadth and magnitude: climate change risks will affect all parts of the economy, across all sectors and geographies. The risks will be correlated and their impact nonlinear and irreversible.
  • The risks are foreseeable: while the exact outcome is uncertain, some combination of transition and physical risks will crystallise.
  • The magnitude of the future impact is dependent on actions today: this includes actions by governments, central banks and regulators, businesses and households, and financial firms.

While these three characteristics mean that climate risks present unique measurement and management challenges, the Bank’s approach has prioritised development of the necessary capabilities, recognising that delay will impair our ability to both measure the risks we are taking in the short term and assess the long-term consequences of those decisions. In particular, the Bank takes a forward-looking approach to climate risk management.

The process for managing these risks will continue to develop as our understanding of underlying risks improves, technical capabilities evolve, and methodologies develop and become more standardised.

The remainder of this chapter sets out the key climate risks the Bank has identified to its financial and physical operations:

Key climate-related risks to the Bank’s financial operations

The Bank engages in a range of market operations for the purposes of implementing monetary and financial stability policy and to fund its wider activities (Figure 4.1). This involves purchasing sovereign and corporate assets, and secured lending to counterparties through our facilities. As part of managing the financial risks involved in this, we conduct credit risk assessments and manage a wide range of collateral.

Figure 4.1: Our policy and balance sheet tools (a)


  • Source: Bank of England.
  • (a) This diagram excludes the Alternative Liquidity Facility as there are currently no exposures. The Covid Corporate Financing Facility (CCFF) is also not included here as it is a short-term facility that closed to new purchases on 23 March 2021.

We have taken a number of steps to incorporate climate risks into our risk management processes. As set out in last year’s report, we have prioritised enhanced information gathering to improve our ability to identify the nature and size of the potential climate risks affecting our exposures. Initially, this new climate information is being incorporated into our assessment frameworks through qualitative analysis. This enhanced information gathering will then allow us to develop our financial risk frameworks further. Our approaches will remain under review as data and methodologies in this area develop (Figure 4.2).

Figure 4.2: Iterative risk management enhancements across the Bank’s financial operations


  • Source: Bank of England.

For our direct exposures, the work undertaken as part of this disclosure report provides an extensive source of data and insight and is a crucial step in incorporating climate risk into our financial risk management. It provides an analysis of the climate emissions, transition and physical risks facing the Bank’s financial asset holdings, and for the first time this year includes analysis that attempts to translate those into measures of financial risk (see below section ‘The Bank’s financial asset portfolios’). We are using this in our financial risk management framework for sovereigns, currently as a qualitative overlay, as set out above, while metrics which aim to translate these risk exposures into estimates of financial risk are being further developed. For corporates, we will be drawing on these analyses in parallel to the work being done on greening the CBPS (Box D).

For our counterparty exposures, we are also developing an approach to incorporate climate risks into our assessments, though this is at an earlier stage. For our collateral holdings, since 2019 the Bank has collected climate-related information in its due diligence questionnaires, covering how lenders are adapting their strategies, risk management frameworks and valuation methods to account for climate risks across the asset classes that are prepositioned with us. We are using that, other publicly available climate datasets and research on the impact of climate change on loan types to refine additional data requests and our approach.

We will explore the extent to which the results from the CBES – due to be received in 2021 Q4 – can inform our climate risk approach. And we will continue to deepen the range of forward-looking scenario-based analyses that we carry out on our own balance sheet, such as the modelling of transition and physical risk set out in Boxes E and F of this report.

The Bank’s financial asset portfolios

The Bank, working with external data providers, has updated the analysis presented last year to assess the risks from climate change to the Bank’s financial asset holdings. This analysis is based on financial asset holdings as at end-February 2021, to align with the Bank’s Annual Report and Accounts.footnote [12] Although data on the Bank’s financial assets are up to date, most of the climate data used in this report are only available with a time lag – indeed the analysis here is based primarily on emissions data from 2019 or earlier and so does not reflect the large but temporary economy-wide reduction in emissions associated with Covid lockdown restrictions in 2020 (Box A).

Box A: Data time lags and the impact of Covid and reporting of emissions

Restrictions imposed by governments in response to Covid have resulted in unprecedented reductions to emissions globally. Analysis from the Global Carbon Project and Carbon Monitor suggest that global CO2 emissions in 2020 were ~6%–7% lower than in 2019. In the UK, preliminary estimates from BEIS suggest that over the same period the decline in UK CO2 emissions was ~11% and the decline in greenhouse gas (GHG)footnote [13] emissions was ~9%.

Assuming these estimates are correct, the annual fall in emissions in 2020 would have been the largest drop in emissions in modern history. By coincidence, it is broadly similar in magnitude to the reduction in emissions required every year over the coming decade to limit rises in global average temperatures to 1.5°C above pre-industrial levels, in line with the Paris Agreement objectives.footnote [14] This underscores the sheer scale of adjustment required to meet these goals.

Due to the nature of emissions reporting, data available to investors are reported with some lag, and so the carbon metrics used to assess our financial asset portfolios in this report do not incorporate these Covid-related reductions:

  • For sovereigns, emissions data used are from the United Nations Framework Convention on Climate Change (UNFCCC) national GHG inventories data, for which the latest available data, published in March 2021, relate to end-year 2018 emissions.
  • For corporates, emissions data come mostly from companies’ annual filings published in 2020 for their 2019 financial years.

Given these lags, Covid-related climate impacts ought to start to show in the corporate measures published in our 2022 disclosure report, which will be based on companies’ 2020 financial year filings, whereas sovereign measures will reflect this effect in our 2023 disclosure report.

Introduction and description of the portfolios

The Bank holds financial assets either to implement the Bank’s policy decisions or to fund its wider activities (Table 4.A).

The Bank’s response to the Covid crisis has significantly expanded the size of its financial asset holdings compared to last year’s report, from £532 billion in February 2020 to £807 billion in February 2021.footnote [15] However, the composition of the holdings remains broadly similar to last year. By far the largest proportion of these assets (97%) continues to be held in a separate legal vehicle known as the Bank of England Asset Purchase Facility Fund, indemnified by HM Treasury, to implement the MPC’s asset purchase programme. In turn, 98% of that portfolio is in sterling UK government bonds (gilts) and the other 2% is invested in sterling corporate bonds.

Table 4.A: Financial asset holdings covered in this section (a)


£ billions, end-Feb. 2021


Investments made in

Asset Purchase Facility (APF) of which:


Mandated by the Bank’s MPC, as part of its asset purchase programme. Held in a separate legal vehicle and indemnified by HM Treasury.

Gilts (98%) and sterling investment grade corporate bonds (2%).

– APF sovereign


– APF corporate (known as the Corporate Bond Purchase Scheme – CBPS)


Bank own securities holdings


For policy implementation, and to fund the Bank’s policy functions.

Gilts (81%), other sovereign and supranational bonds.

Bank pension fund


To fund the Bank’s staff pension scheme.

Gilts and gilt equivalents.


  • Source: Bank of England.
  • (a) The Bank’s own securities holdings include the Bank’s ‘Sterling Bond Portfolio’, and for the sake of consistency these are stated here at fair value, like the rest of the asset values in Table 4.A.

The rest of this section is arranged in two parts: the first covering the Bank’s sovereign asset holdings, and the second covering its corporate bond holdings. For each part, we report measures of: the carbon footprint of the holdings; estimates of transition risk; and estimates of physical risk.

The metrics in this section draw both on published data and data and methodologies from external data providers which the Bank has used. Data for climate risk analysis are evolving rapidly, and as a result some of the metrics used here are still in the early stages of development and should therefore be seen as illustrative only when applied to the Bank’s holdings. Data and methodology-based considerations are discussed in more detail in Box B.

Box B: Climate data, methodologies and limitations

Climate risk analysis for financial investments is improving rapidly, but remains in its infancy. As a result, there are currently a number of limitations with respect to data and analysis techniques, which should be borne in mind when reading this report.

The availability of reported emissions data has improved since last year, driven by increased demand for better disclosure from investors and by the UK’s Streamlined Energy and Carbon Reporting regulation. This means the quality of the carbon footprint estimates reported here has improved as a greater proportion are based on reported, rather than modelled, data. This trend should continue over time, as demand for, and regulation around, better disclosure increases.

Data are less readily available for some asset types (for example, assets issued by unlisted corporates, government-guaranteed or supranational entities). Where data are unavailable, we aim to use a suitable proxy, for example country-level emissions data for a government agency situated within that country, or data providers’ modelled estimates for a corporate issuer.

There have been a number of improvements since last year in both the methodologies adopted by the Bank’s external climate data providers, and in the Bank’s use of metrics. For example: physical risk scores now incorporate more granular climate hazard data used to map physical risks to specific locations; methodologies underpinning warming metrics have changed; and we are using more scenario analysis in order to derive measures of financial impact. An NGFS working group chaired by the Bank has published headline scenarios, drawing on a suite of climate models from different bodies. One gap currently is on standardised sector-specific pathways to use in this scenario analysis. As a result, the analyses presented in this report use a range of different scenarios and time horizons depending on data availability. But all are consistent with headline NGFS scenarios.

In general, therefore, the metrics shown in this report are an improvement on last year. Nevertheless, they should still be thought of as providing only an approximation of the risks facing the Bank’s holdings while estimation methods develop and become more robust.

The Bank is actively involved in multiple domestic and international initiatives that aim to bridge current climate data gaps and increase standards and consistency of climate risk modelling. Engagement with the TCFD disclosure initiatives by financial firms should encourage the development and standardisation of climate-related risk metrics. The joint UK Government and regulator TCFD Taskforce published a roadmap to mandatory disclosure in November 2020, which should significantly increase the availability of UK climate-related data.footnote [16]

We will continue to monitor developments in climate risk data and methodologies in order to adapt our approach in line with emerging best practice.

Sovereign asset holdings

Carbon footprint

Carbon footprint metrics provide an assessment of the GHG emissions associated with a given investment portfolio. These metrics provide a current view of the environmental impact of the investments in any given portfolio which, when combined with other data, may also help indicate how investments may be affected by future climate risks.

The preferred metric for assessing the carbon footprint of an investment portfolio, as currently recommended by TCFD, is the Weighted Average Carbon Intensity (WACI). This calculates the average carbon intensity of a portfolio (GHG emissions measured relative to GDP), weighted by the relative size of the investments in that portfolio. This metric is useful as it allows for comparisons between similar types of assets and portfolios, regardless of investment size. The data used here measure emissions on a ‘production basis’: ie emissions from all goods and services produced within a country’s territorial boundary and consumed anywhere in the world.

This year we have used data from the UNFCCCfootnote [17] and the World Bank, and have also presented the WACI metrics from last year’s report using this dataset for comparison.

Chart 4.1: WACI of the Bank’s sovereign holdings (a)(b)(c)(d)


  • Sources: Bloomberg Finance L.P. data for market value of debt outstanding for G7 countries, UNFCCC GHG emissions data (2017 and 2018), World Bank GDP $ PPP (2017 constant prices, for 2017 and 2018) and Bank calculations.
  • (a) Due to the lag in reporting of national carbon emissions, the emissions data for the 2020 and 2021 portfolios are from 2017 and 2018 respectively.
  • (b) For reference, the reported WACI of the APF Sovereign, Pension Fund and own securities holdings in last year’s report were 202, 202, and 227 tCO2e/£m GDP respectively, using a different dataset (S&P Trucost).
  • (c) For the purposes of this assessment, supranational and government-guaranteed issuers are assigned the same risk scores as the countries in which they are situated.
  • (d) The G7 reference portfolio is calculated by weighting G7 countries according to the market value of debt outstanding at year end (end-Feb 2020 and end-Feb 2021). Market value of debt data are from Bloomberg Finance L.P.

The WACI of the Bank’s sovereign holdings has fallen slightly compared with a year ago, and remains materially lower than that of a comparable G7 reference portfolio, reflecting the UK’s favourable relative emissions performance. The sovereign holdings in the APF and Pension Fund are comprised entirely of gilts, and so the WACIs of both are the same as that of the UK sovereign – at 222 tonnes of CO2 equivalents per £ million GDP (tCO2e/£m GDP). The WACI of the Bank’s own securities holdings is slightly higher (at 261 tCO2e/£m GDP), reflecting that approximately 20% is invested in the debt of sovereigns with a higher carbon footprint than the UK.

Transition risk

In order to achieve national and international climate goals over the coming decades, countries and companies around the world need to undertake unprecedented structural changes to reduce global GHG emissions at a significantly faster rate than is occurring today. These substantial changes to business models and economic conditions will result in so-called ‘transition risks’ to sovereign and corporate assets – as changes in policy, technology and sentiment prompt a reassessment of asset values.

One aspect in monitoring transition risk exposure in sovereign holdings is to look at sovereigns’ fossil fuel exposures. If all proven fossil fuel reserves were to be consumed, the global emissions generated would far exceed the levels required to achieve the Paris Agreement. There is therefore an increasing likelihood that at least some fossil fuel-related assets could become ‘stranded’ (ie remain unexploited) as their economic value falls.

One method that can be used to assess the stranded asset risk of countries is to estimate the proportion of GDP accounted for by activities relating to extraction and production of natural resources. Using this approach, it appears that the Bank faces limited direct stranded asset risks to its sovereign holdings. According to the World Bank, total ‘natural resource rents’ (the profit from extracting natural resources) account for 0.7% of GDP for the developed market sovereigns held in the Bank’s own securities holdings, measured on a weighted average basis. Of that, less than 0.05% is contributed by coal rents. Taking the UK on its own (the most relevant comparator for the APF Sovereign and Pension Fund holdings) total natural resource rents are also 0.7% of GDP, primarily reflecting the remaining North Sea oil reserves. Of that, less than 0.002% is from coal.

Another relevant consideration when assessing the climate risk of sovereign assets is to assess countries’ forward-looking climate policies. If a country’s policies are not sufficiently aligned with international climate targets then it may be more exposed to risks associated with disorderly transition, which could have an impact on the values of its sovereign bonds at some horizon. Box C outlines how the UK interprets the international goals of the Paris Agreement, and how climate scenarios can be used to estimate potential risks if policies are implemented at different time horizons from those intended, or some are not implemented at all.

Chart 4.2 plots consensus scientific estimates of global emissions pathwaysfootnote [18] consistent with the Paris Agreement – the pink and blue lines in the chart. It then compares these to emissions expected if the climate policies planned by the sovereign issuers in the Bank’s own securities holdings are enacted – represented by the green range in the chart. ‘Planned policies’ refers to policies that have either already been implemented, or have been announced and not yet implemented but will have an impact over the time horizon in the chart when in place.footnote [19] Looking backwards in time, the chart shows significant variations in sovereigns’ emissions over the period for which historic data are available (2010–18), with some achieving reductions in line with the Paris 1.5°C scenario and others increasing their emissions. There clearly is uncertainty around the forward-looking projections. Nonetheless, the chart suggests that none of the sovereign issuers in the Bank’s own securities holdings yet have sufficient policies planned to achieve the long-term 1.5°C ambitions of the Paris Agreement. How countries respond to this challenge will affect transition risk in the Bank’s holdings.

Chart 4.2: Historic and future emissions paths of sovereigns in the Bank’s own securities holdings (a)(b)


  • Sources: Climate Action Tracker (CAT) [Data Portal] © 2009-2021 by Climate Analytics and NewClimate Institute, accessed Feb 2021, all rights reserved, IPCC Special Report: Global Warming of 1.5°C and Bank calculations.
  • (a) The analysis does not extend beyond 2030 because that is the assessment horizon of the CAT projections underpinning the chart.
  • (b) Planned policies here refers either to policies that have already been implemented, or have been announced and not yet implemented but will have an impact over the time horizon in the chart when in place.

Box C: International and national climate goals

The Paris Agreement, ratified in 2016 by members of the UNFCCC, sets out a global framework for combating climate change. The primary goals of this agreement are to keep the average global temperature rise this century well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase to 1.5°C. Achieving these targets will require large-scale reductions in GHG emissions globally – and estimates by climate science bodies such as the IPCC suggest that countries have to be net zero by mid-century to achieve this.

The UK was the first major economy to pass a law requiring all GHG emissions to be net zero by 2050. Net zero means any human-induced emissions would be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere, such as using technology like carbon capture and storage, or planting trees. Within this target, the UK has also set itself shorter-term goals, for example committing, in April 2021, to reduce emissions by 78% by 2035 compared to 1990 levels.

Different metrics try to provide an assessment of whether current and planned emissions associated with the Bank’s financial asset holdings are consistent with meeting these targets. This is a useful approach as by illustrating the extent to which emissions will have to change over time, it can provide an indication of the scale of the risks facing those holdings.

In addition, while companies and countries around the world are increasingly setting emissions reductions targets of this kind, an important part of climate risk analysis is to assess the potential risks if policies are implemented at different time horizons from those intended, or some are not implemented at all. This requires scenario analysis and as outlined earlier (Box C), we have included more of this in this year’s report in order to derive measures of the financial impact of the climate risks facing our holdings.

Physical risk

The financial costs of physical climate change have also risen, and are projected to increase substantially further over coming decades. The manifestation of these risks and how they could evolve over time varies significantly by geography, and so the development of appropriate physical risk monitoring tools is essential for financial risk management. But the assessment of physical climate risks remains a significant technical challenge, requiring (among other things) detailed geographical data on asset locations to determine the severity of potential weather events in different locations.

The estimates of physical risk exposures in the Bank’s sovereign holdings presented here use a ‘scorecard’ approach developed by one of the external data providers that the Bank has used.footnote [20] A range of indicators are used to score each country’s current and expected future physical risk exposures (as a proportion of GDP, population and agricultural land use) from zero to 100, where zero indicates ‘lowest risk’ and 100 indicates ‘highest risk’. The rankings give one perspective as to which sovereign financial assets may be the most exposed either to an increase in extreme weather events, or to chronic shifts in weather patterns.

The methodology used to do this scoring has been updated since that used in last year’s report. The scores now represent a percentile ranking – eg a score of 25 now means that 25% of the other countries assessed by the data provider have lower scores across each event type. This helps provides a more direct measure of relative physical risk exposures across sovereign holdings. More granular location data on flooding have also been incorporated into the scores for flood risk and sea- level rise – which is important given that these were the most important physical risk categories for our sovereign holdings last year.

These changes in methodology mean that the scores in this year’s report are not directly comparable to those in last year’s report. But again, we have recalculated the scores from last year using the revised methodology, in order to show how risks have evolved over the year, holding the methodology constant.

Using this improved methodology, the physical risk exposure in the Bank’s sovereign asset holdings remain relatively low overall – in the 9th to 16th percentile relative to the universe of sovereign scores assessed by the external data provider (Chart 4.3). Restated total scores using this methodology for last year lay between the 9th and 17th percentile.

Behind this overall position, sea-level rise (55th percentile) and flood risk (32nd percentile) pose the most material physical risks – again similar to the restated position last year (52nd and 33rd respectively). As was the case last year, the presence of some non-UK assets in the Bank’s own securities holdings poses marginally greater risks to the Bank from non-UK weather patterns such as hurricanes and heat stress. However, risks from these more extreme weather events remain much lower than in the G7 reference portfolio.

Chart 4.3: Physical risks facing the Bank’s sovereign asset holdings (a)(b)(c)


  • Sources: Bloomberg Finance L.P., Four Twenty Seven and Bank calculations.
  • (a) This year’s scores are not comparable with the scores presented last year, due to updates to the providers’ methodologies.
  • (b) For the purposes of this assessment, government-guaranteed issuers are assigned the same risk scores as the countries in which they are situated.
  • (c) The G7 reference portfolio is calculated by weighting G7 countries according to the market value of debt outstanding at year-end (end-Feb. 2020 and end-Feb. 2021). Market value of debt data are from Bloomberg Finance L.P.

Sterling corporate holdings

The rest of this section sets out the metrics used to assess the climate risks facing the Bank’s corporate holdings. As outlined above, the investments in the CBPS account for 2% of the Bank’s overall APF holdings, and are held for monetary policy purposes.

The CBPS was launched by the Bank’s MPC in 2016, and was designed to lower the borrowing costs and support bond issuance of firms that make a material contribution to the UK economy (eg companies with significant employment or headquarters in the United Kingdom). Financial sector companies regulated by the Bank or the FCA are not eligible.

An important part of the original design of the CBPS was to achieve the aim of imparting monetary stimulus in a way judged to be ‘sector neutral’ in the sense that CBPS investments should not create distortions in the relative borrowing costs faced by companies in different sectors. This is currently done by investing in sectors in proportion to the total outstanding eligible issuance accounted for by each sector within the sterling investment grade corporate bond market.

Following the March 2021 update to the MPC’s remit, the Bank announced that it would set out a new approach to its corporate asset purchases ahead of its planned reinvestment round later this year. A discussion paper on how this might be done was published in May and Box D summarises the key messages of that paper.

Carbon footprint

Corporate GHG emissions are commonly reported under three ‘Scopes’ as defined by the GHG Protocolfootnote [21] (Figure 4.3). Under this framework, ‘Scope 1’ represents a corporate’s direct emissions; ‘Scope 2’ refers to the emissions associated with purchased and consumed energy by that corporate; and ‘Scope 3’ includes all other indirect emissions associated with the production and consumption of a firm’s products.

Figure 4.3: The three scopes of GHG emissions reporting


  • Sources: Bank of England and GHG Protocol.

In this report, the carbon footprint metrics associated with the Bank’s corporate holdings focus primarily on Scope 1 and 2 emissions. In some sectors, the largest component of a company’s carbon footprint may in fact come from Scope 3 emissions. However, when looking at portfolio level statistics there is a risk of double counting when Scope 3 is included (as one company’s Scope 3 emissions may well be others’ Scope 1 or 2). In addition, the lower reporting and availability of corporate Scope 3 data mean they are not yet widely used in portfolio reporting.

For corporates, WACI metrics are based on emissions relative to revenue, as compared to emissions relative to GDP for sovereigns. As outlined in Box B, compared to last year’s report, a greater proportion of corporate emissions data are now reported and so it is possible to calculate the WACI of the CBPS holdings using fewer modelled data (we now have disclosed emissions data for approximately 83% of the portfolio, up from 74% last year). In order to look at how the WACI metric has changed year on year, we have therefore restated the WACI from last year’s report using this wider coverage of reported emissions data.

Based on the latest available emissions data for 2019 (see Box A), the carbon footprint of the CBPS has fallen by 9% year on year and remains broadly representative of the sterling investment grade corporate bond market (Chart 4.4). This fall mainly reflects broad decarbonisation across the economy, but a part of it is also a result of the increase in the availability of reported data. The consistency with the WACI of the sterling investment corporate bond market is a result of the portfolio's current investment design, as set out above. The CBPS holdings WACI is 251 tonnes of CO2 equivalents per £ million of revenue (tCO2e/£m revenue), compared with 276 tCO2e/£m revenue for the previous year and 247 tCO2e/£m revenue for the current eligible universe of assets.

Chart 4.4: WACI of the CBPS over time, compared with a reference portfolio (a)(b)(c)


  • Sources: Certain information ©2021 MSCI ESG Research LLC, reproduced by permission, companies’ annual filings and Bank calculations.
  • (a) Last year’s portfolio WACI has been restated from the previously published figure of 294 tCO2e/£m to account for improvements in data quality (ie moving from modelled estimates for emissions to companies’ disclosed emissions).
  • (b) For MSCI data used throughout this report: Although the Bank of England’s information providers, including without limitations, MSCI ESG Research LLC and its affiliates (the ‘ESG Parties’), obtain information (the ‘Information’) from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any financial instruments or products or indices. Further, none of the Information can in and of itself be used to determine which securities to buy or sell or when to buy or sell them. None of the Information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
  • (c) The ‘Eligible universe reference portfolio’ represents eligible assets as at the respective portfolio dates, weighted by nominal debt outstanding.

Beneath this aggregate metric, there continues to be significant sectoral variation in the carbon intensity of the CBPS (Chart 4.5). The utility sector (electricity, water and gas networks) and energy sector (firms involved in the extraction and production of natural resources such as oil and gas) are notably more emissions-intensive than other sectors, given the nature of their activities. Yet Chart 4.5 also shows that these emissions-intensive sectors reported improvements in their year-on-year WACI, albeit with variations at issuer-level. Across different firms this may reflect improvements in the efficiency of operational processes or increases in renewable energy capacity. Note that last year’s report presented the contribution of each sector to the overall WACI of the holdings. This year we instead present the WACI for each sector in the holdings, to provide a clearer illustration of each sector’s year-on-year performance.

Chart 4.5: Weighted average sectoral carbon intensities for the CBPS portfolio in 2021 and 2020


  • Sources: Certain information ©2021 MSCI ESG Research LLC, reproduced by permission, and Bank calculations.

Forward-looking emissions performance against climate goals

As discussed above, material economy-wide changes will be required to reduce GHG emissions in line with long-term climate goals. Companies will need to consider how their business models will need to change as the economy transitions. As with the sovereign analysis, forward-looking measures of climate performance are therefore a vital complement to current carbon footprint metrics when assessing risks to corporate asset holdings. Such approaches are however inevitably subject to significant levels of uncertainty, and are highly sensitive to underlying assumptions and methodologies.footnote [22]

Implied Temperature Rise (ITR) metrics provide one means of taking a forward-looking approach to climate risk analysis. These measures aim to assess the implied temperature trajectory of a portfolio so it can be compared with international climate goals. The Bank’s 2020 climate risk disclosure included an illustrative metric of this kind that estimated that the CBPS portfolio was aligned with 3.5°C degrees of warming by the end of the century.footnote [23] But variations around that methodology produced alternative estimates ranging from <1.75°C to 4°C.footnote [24] Ranges of this size complicate the use of such metrics for operational decision making.

Methodologies for these types of measures are, however, improving. The provider that calculated the 3.5°C estimate has significantly refined their methodology since last year. For example, compared to last year’s report, the metric now explicitly incorporates companies’ disclosed emissions reductions targets when estimating forward-looking climate performance, where these had previously been based on a modelled extrapolation of emission reductions according to a company’s current emissions and estimates of its green activities. The metric also includes enhanced estimates of the impact of emissions reductions from low-carbon technology. In addition, last year’s metric estimated companies’ ‘warming’ using only Scope 1 emissions, whereas Scope 2 and Scope 3 emissions are now also included. This is in line with emerging guidance for portfolio alignment metrics as it helps to prevent underestimation of warming, in particular for companies whose Scope 2 and 3 emissions are a greater proportion of the total. It may also help to incentivise companies to consider how to address emissions in their supply chains. But further work will be needed to address data quality and double counting issues.footnote [25]

Using the new methodology, the CBPS portfolio’s implied temperature alignment is estimated to be 3.0°C. This means that if the projected emissions performance of the CBPS holdings were representative of the emissions performance of corporates globally, and decarbonisation efforts were not increased further, the world would experience 3.0°C of warming by the end of the century. Although that is lower than the 3.5°C shown in last year’s report,footnote [26] the decline entirely reflects the improvements in methodological approach (rather than any year-on-year reduction)footnote [27] – and remains significantly above the degrees of warming required to meet the goals of the Paris Agreement.

The Bank supports the continued development of forward-looking warming metrics, which provide a highly intuitive indication of the degree of alignment of portfolios. They do however require a large number of assumptions, in particular about the nature and credibility of constituent firms’ future emissions paths, and can be sensitive to small changes in these assumptions. In parallel to this ongoing support, we and others are therefore also exploring simpler and more transparent approaches to provide comparisons. One such approach is to look directly at corporates’ decarbonisation plans, rather than incorporating them into warming metrics.

One way to assess the extent to which those plans will lead to sufficient economy-wide reductions in emissions is to compare how far they align with the UK’s 2050 net-zero target, and Chart 4.6 is an attempt to do this. The pink line shows the carbon intensity pathway estimated by the Committee on Climate Change (CCC) to be required over the next 10 years in order for the economy to be on track to meet the UK’s net-zero target by 2050.footnote [28] The green swathe shows the range of carbon intensity targets published by corporates accounting for 45% of the bonds held in the CBPS, translated by one of the data providers into carbon intensity schedules out to 2030. And the blue line shows the average carbon intensity target of those firms.

On the face of it, Chart 4.6 shows that while some of the firms in the sample have set themselves targets that put them on track to meet, or even beat, the UK’s net-zero targets, on average that is not the case for the sample as a whole. Unless these targets become more ambitious over time, that could pose risks to the Bank’s holdings in the CBPS. There are however some important caveats to this approach. First, it doesn’t reflect that corporates in different sectors of the economy will need to follow different decarbonisation pathways – so comparisons to the UK economy-wide net-zero pathway are less useful than to sector pathways. For that reason, development of robust sector pathways is a crucial priority. Second, this chart only covers 45% of our CBPS holdings, reflecting data availability currently from providers. And third, this is inevitably a snapshot and does not incorporate plans firms may have to increase their ambition over time. All that said, this kind of analysis provides another type of forward-looking metric and the Bank will continue to work with multilateral organisations to develop best practice in this area.

Chart 4.6: The range of decarbonisation plans for a subset of corporates in the APF portfolio (a)(b)(c)


  • Sources: The CCC’s Sixth Carbon Budget, Certain information ©2021 MSCI ESG Research LLC, reproduced by permission, and Bank calculations.
  • (a) This chart only covers companies with targets recorded by MSCI ESG Research, which account for only 45% of assets in the CBPS portfolio. The analysis includes all three scopes of emissions, each assigned a weighting by their relative importance according to the sector they are in.
  • (b) The emissions reductions plans presented in this chart have been translated by MSCI into carbon intensity schedules out to 2030 so they can be compared on a like-for-like basis.
  • (c) The UK’s net-zero pathway is based on the balanced net-zero pathways from the UK’s sixth carbon budget.

Box D: Greening the CBPS update

The investments in the APF corporate portfolio are held for policy purposes and directly reflect the design of the CBPS when it was launched by the MPC in 2016.

The CBPS was introduced to lower the borrowing costs and support bond issuance of firms that make a material contribution to the UK economy – eg companies with significant employment, or headquarters, in the United Kingdom. Financial sector companies regulated by the Bank or the FCA are not eligible; these typically have low direct emissions in any case.

As set out in Chapter 3, on 3 March 2021 the MPC’s remit was updated to clarify that its secondary objective, of supporting the Government’s economic strategy, now includes maintaining ‘a financial system that supports…the transition to a net-zero economy’. In response, the Bank announced that it would adjust the design of the CBPS to account for this new objective, with a view to implementing that approach in its next scheduled round of reinvestments. The Bank published a discussion paper in May. This set out the principles for our approach and the tools which we intend to use to implement these (Figure 4.4), and sought input from stakeholders.

Figure 4.4: The Bank’s approach to greening the CBPS