Bank of England Steps Up Call for Climate Action
In the first such move by a central bank worldwide, the Bank of England (BoE) has stepped up its calls for financial institutions to take action on climate change with the release of a set of proposed supervisory rules.
The BoE’s Prudential Regulation Authority (PRA) has published a draft supervisory statement instructing companies on managing climate change related risks through a number of measures. These include having a senior manager in place who can report to the board on financial risks from climate-change, undergoing appropriate risk management, and conducting scenario analysis. The statement also encourages firms to disclose information on financial risks from climate change, and engage with wider climate-related disclosure initiatives.
While this is the first time a regulator has included climate-change related actions in its mandatory supervisory framework, it does follow a string of interventions from central banks encouraging businesses to enhance their climate-change risk related disclosure. Last week 18 central banks, including those of England, Germany, France, Japan and China, issued a statement warning that financial risks arising from climate change are “system-wide and potentially irreversible if not addressed”.
The TCFD disclosure recommendations ask that companies link climate related risks — and opportunities — to their financial models, appraising investors and other stakeholders of the upside, and downside risks associated with their business operations. The Bank of England is making it clear that firms can expect climate-related risk to be directly factored into banking and insurance supervision.
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