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BofE to stress test financial system against climate pathways

BofE to stress test financial system against climate pathways

As the financial services industry faces up to the threat of climate change, the Bank of England is to become the first global regulator to stress test its system against different "climate pathways", says governor Mark Carney.

Speaking at the Task Force on Climate-related Financial Disclosures (TCFD) summit in Tokyo, Carney said that the financial sector must help the transition to 'net zero' and promote "sustainable finance".

For its part, the BofE will be the first regulator to stress test its financial system against different climate pathways, including the catastrophic business as usual scenario and the ideal
transition to net zero by 2050.

This means banks will need to establish how their borrowers are managing current and future climate-related risks to help the BofE develop risk management techniques.

Carney noted that the industry has made significant progress on environmental work in the last two years and that "conversations about climate-related financial risks have moved from the fringes to the forefront".

Almost three quarters of banks in the UK are starting to treat the risks from climate change like other financial risks - rather than viewing them simply as a corporate social responsibility issue.

Now, the governor said, companies, their banks, insurers and investors must go further on climate-related reporting and risk management by increasing the quantity and quality of their disclosures, refining disclosure metrics, and working to disclose the extent to which portfolios are ready for the transition to net zero.

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