Beginning 2022 Bank of England (BoE) will incorporate supervision of climate-related financial risks into its core supervisory approach.
BoE has asked banks in Britain to properly quantify risks from climate change or face regulatory intervention if they fall short.
Climate change presents a material and increasing financial risk to firms and to the financial system. Managing the risks to firms’ safety and soundness from climate change requires action now and remains a vital priority for Prudential Regulatory Authority (PRA).
Some firms have made good progress in embedding the supervisory expectations but progress
has not been consistent across all firms, with further work required by many to meet those expectations.
In a letter addressed to all bank CEOs in the UK, the central bank said, “We have observed that most firms are focused on the business opportunities presented by climate change and remind firms that climate change also presents an increasing business risk that is foreseeable and requires action now.
“From 2022, we will incorporate supervision of climate-related financial risks into our core supervisory approach. The assessment of a firm’s management of climate-related financial risks will be included in all relevant elements of the supervisory cycle.”
The letter said “as our collective understanding of climate-related risks, data, tools, and best practice evolves, we expect firms to refine and innovate to better integrate climate-related financial risk management across their organisation”.
The central bank will pay particular attention to how firms quantify climate-related risks and incorporate those risks into business strategies, decision-making, and risk-taking. Furthermore, it will keep a range of supervisory tools under review for use where progress is deemed to be insufficient. M