BoE Publishes Open Letter on Financial Risks from Climate Change

The letter highlights that the following four recommendations in the NGFS report provide all central banks, supervisors, and the financial community with deliverable goals that will help to ensure a smooth transition to a low-carbon economy:

• First, integrate the monitoring of climate-related financial risks into day-to-day supervisory work, financial stability monitoring, and board risk management. Supervisors are encouraged to set expectations to ensure financial firms are adequately addressing the financial risks from climate change, including by conducting scenario analysis to assess their strategic resilience to climate change policy. Firms are encouraged to take a long-term, strategic approach to the consideration of these risks, and to embed them into their business-as-usual governance and risk-management frameworks.
• Second, lead by example, specifically central banks are encouraged to integrate sustainability into their own portfolio management.
• Third, collaborate to bridge the data gaps to enhance the assessment of climate-related risks. Public authorities should share and, if possible, make publicly available any climate-risk data.
• Fourth, build in-house capacity and share knowledge with other stakeholders on management of climate-related financial risks. An important element to achieving effective consideration of climate risks across the financial system is to support internal and external collaboration.

The success of these recommendations relies on two important factors, which lead to two broader calls to action on disclosure and classification of climate-related financial risks. to support the market and regulators in adequately assessing the risks and opportunities from climate change, robust and internationally consistent disclosure is vital. The market and policymakers must continue to work together to determine the most decision-useful metrics for climate-related financial disclosures. Additionally, NGFS encourages regulators to develop an adequate classification system to identify which economic activities contribute to the transition to a green and low-carbon economy. This will be particularly valuable in supporting financial actors to make sustainable investment and lending decisions.

Related Links

• BoE News Release
• Open Letter
• NGFS Report on Climate Change Risks (PDF)
• Related NGFS Reports

Keywords: Europe, UK, France, Banking, Insurance, Securities, Climate-Related Financial Risks, NGFS, BoE