Our response to climate change
We published an article in the June 2017 edition of our Quarterly Bulletin summarising the financial risks from climate change, and our strategy for responding to them.
The Governor of the Bank of England, Mark Carney, has highlighted the Bank’s view of climate change in various speeches.
Insurance supervision and climate change
In September 2015, the Prudential Regulation Authority (PRA) published a report on the impact of climate change on the UK insurance sector.
The report identified three types of climate-related financial risk:
- Physical risks: risks that could arise from climate and weather-related events, such as floods and storms, which can damage property or disrupt trade.
- Transition risks: risks that could arise from the process of adjusting to a lower-carbon economy, such as changes in policy, technology, or investor sentiment.
- Liability risks: risks that could arise from parties who have suffered loss or damage.
The PRA continues to consider climate-related risks through a mix of supervisory activities, research, dialogue and engagement and international collaboration, including participating in the Sustainable Insurance Forum.
Banking supervision and climate change
The Prudential Regulation Authority (PRA) has initiated a review of climate-related risks to regulated firms in the UK banking sector. The review follows a similar process to work already completed for the insurance sector. It includes a mix of research and engaging with selected firms through a combination of surveys and meetings.
Research on climate change
In February 2015, we launched our One Bank Research Agenda, which outlined our research priorities. Under the theme ‘Response to fundamental change’, we identified the impact of climate change and the role of central banks in addressing systemic environmental risks as an area which requires further research.
Activities in this area to date include:
In May 2016, we published a Staff Working Paper on the impact of climate change on central banks. It examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives.
In July 2016, we held a joint workshop with the Met Office on climate risk and financial stability.
In November 2016, we held a joint conference, 'Central banking, climate change and environmental sustainability’ with the Council on Economic Policies.
Disclosing climate-related financial risks
To allow markets to better assess, price and manage climate-related risks, the Financial Stability Board (FSB) has, at the request of G20 leaders, established the industry-led Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg. Its goal is to promote voluntary, consistent, comparable, reliable and clear disclosures around climate-related financial risk. Access to better-quality information will allow market participants to better understand and manage these risks. And an early understanding can, in turn, help promote a smooth, orderly market transition to a lower carbon economy.
The TCFD is industry-led under the sponsorship of the FSB. Its work and recommendations for disclosure were published for consultation in December 2016 and TCFD’s final report was published in June 2017.
Bank of England Governor Mark Carney, who is also Chairman of the FSB, gave remarks at the launch event of the TCFD recommendations.
On behalf of the UK, we co-founded and are co-chairing the G20 Green Finance Study Group (GFSG) with the People’s Bank of China, and the UN Environment (UNEP) Inquiry as secretariat. Recognising the need to scale up green finance and to deploy tens of trillions of dollars over the coming decade, the study group’s mandate is to ‘identify institutional and market barriers to green finance and, based on country experiences, develop options on how to enhance the ability of the financial system to mobilize private capital for green investment’.
Working closely with HM Treasury, we co-chaired four study group meetings during 2016 and supported a range of related private-sector events. The study group’s Synthesis Report was welcomed at the July 2016 G20 leaders’ summit Chengdu, China and was published at China’s G20 Summit in September 2016.
Under the German presidency in 2017, the GFSG advanced two areas of research. First, the integration of environmental risk analysis into the financial system and second, identifying publicly available environmental data that can be applied to financial decision making. The study group’s Synthesis Report, as well as background papers on environmental risk analysis, publicly available environmental data and a progress report on green finance, were presented and acknowledged at the G20 leaders’ summit in Hamburg.
Both years’ synthesis reports, as well as background papers and related G20 documents, can be found in the G20 GFSG repository.
Reducing our environmental impact
We are also committed to running our own operations responsibly and sustainably. Our Greener Bank programme is aimed at reducing the environmental impact of our day-to-day operations.