Our response to climate change
The Bank of England's response to climate change | ||
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Greenhouse gas emissions are changing our climate at a rapid pace. These changes come with some risks. |
The response to climate change will bring changes to society and the economy. These changes come with some risks. |
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Physical risks Like extreme weather events (floods and heatwaves etc.) and longer-term changes to our climate (sea level rise etc.)
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The risks affect the financial system and the economy. |
Transition risks You can think of these as changes that governments, industries and consumers make in pursuit of a greener world.
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This matters to our mission, which is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. And that puts climate change at the heart of our prudential, financial stability and monetary policy objectives and the way we run our operations. |
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We have and will continue to act proactively to address the risks from climate change. Our efforts are driven by our climate objective and goals. |
Our climate objective is to play a leading role, through our policies and operations, in ensuring the macroeconomy, the financial system, and the Bank of England itself are resilient to the risks from climate change and support the transition to a net-zero economy. This objective is supported by five key goals | ||||
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Ensuring the financial system is resilient to climate-related financial risks |
Supporting an orderly economy-wide transition to net zero emission |
Promoting the adoption of effective TCFD-aligned climate disclosure |
Contributing to a co-ordinated international approach to climate change |
Demonstrating best practice through our own operations |
We have made a 10-part pledge to advance the climate agenda across our strategic priorities:
Key goals & pledges | |
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Ensuring the financial system is resilient to climate-related financial risks The PRA issued climate-related supervisory expectations for regulated firms in 2019, with a deadline for firms to have embedded them as far as possible by end-2021. Recognising the challenges this presents, the PRA has joined the FCA to set up the Climate Financial Risk Forum (CFRF) - a group of industry representatives that gives guidance to industry on climate risks. The Bank has also launched the Climate Biennial Exploratory Scenario (CBES) exercise to assess the resilience of major UK banks, insurers, and the wider financial system to different climate scenarios by sizing financial exposures, identifying challenges to firms' business models, and improving firms’ risks management. |
Pledge 1 From 2022 the PRA will embed climate change in its supervisory approach and actively supervise firms in line with the expectations. Supervisory tools will start to be used where appropriate. The CFRF will continue its assistance of firms in its third session. Supervised firms are already required to hold capital against material climate risks. The Bank will advance its thinking on the use of capital for micro and macro prudential purposes. It will make a call for research and update its approach to capital use by end-2022. |
Supporting an orderly economy-wide transition to net zero emissions The Bank has worked internationally to develop climate scenarios that shine a light on different transition paths - notably through acting as chair of the NGFS's macro financial work stream. These scenarios - actively used by over 22 global central banks - demonstrate the need to reach net zero in a timely manner, and the risks that could arise under different pathways. The move to net zero is integral to the Bank's ability to meet its remits.
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Pledge 3 The Bank will publish the results of the CBES. By end-2022, the Bank will set out its future strategy for scenario analysis, drawing on supervisory and capital work and the CBES project. Achieving net zero is core to the Bank's remits and the UK government's economic strategy. The PRA will explore and update how transition plans will be used in its supervisory approach. |
Promoting the adoption of effective TCFD-aligned climate disclosure The Bank has advocated for climate disclosures, notably using the TCFD framework, internationally and domestically. This has involved working with the UK government on its roadmap for mandatory TCFD disclosures. To lead by example, and to be transparent, the Bank has now issued TCFD reports for two years. These reports cover all its on-balance sheet operations, including the investment assets it holds for monetary policy purposes. |
Pledge 5 Disclosure is a cornerstone of the climate agenda. The Bank will work internationally to advocate for new regimes that aid this agenda (including the IFRS Foundation's International Sustainability Standards Board) and for these regimes to be aligned where possible. |
Contributing to a co-ordinated international approach to climate change The Bank is an active member of the global organisations and partnerships seeking to deliver climate-change analysis and solutions. It has undertaken key chair roles and invested in furthering shared work. In 2021, the Bank has supported the UK Government deliver a G7 agenda with the greatest focus on climate change to date. The Bank has also increased the climate training it undertakes for central banks through its Centre for Central Banking Studies. |
Pledge 6 Global issues require global solutions. As the Bank advances its climate agenda, it will ensure it is aligned with that of the international community. This includes working through the BCBS, IAIS, FSB, NGFS, G7 and G20. To aid discussions, as well as domestic thinking, the Bank will undertake further analysis on the impacts of climate change and the net-zero transition from macro-economic and financial stability perspectives. |
Demonstrating best practice through our own operations The Bank recognises the importance of practising what it preaches - it has undertaken a number of steps to facilitate this. In 2021 the Bank committed to reducing emissions from our own operations to net zero by 2050 at the latest. In 2021 the Bank also developed an innovative framework for assessing climate considerations in its corporate bond portfolio, to support the transition to net zero. |
Pledge 8 The Bank will publish its third TCFD-aligned climate-related financial disclosure, and will build on previous disclosures through increased levels of transparency. The Bank will set out how its 2050 net zero pledge will be met across all its physical operations. Following public consultation, the Bank will roll out its innovative approach to greening its corporate bond portfolio when it commences the next round of CBPS reinvestments in November 2021. |