Featured Product

    BoE Sets Out Results of 2021 Climate Scenario Exercise for Banks

    The Bank of England (BoE) published results of the Climate Biennial Exploratory Scenario (CBES), which explores the financial risks posed by climate change for the largest participating banks and insurers in UK.

    The key objectives of this climate scenario exercise were to improve climate risk management of banks and insurers, size financial exposures to climate risks, understand challenges to business models from climate-related risks, and analyze the broader implications of such aspects. This exercise included three scenarios, with two scenarios featuring policies to limit global temperature rises (Early Action scenario and Late Action scenario) and a third scenario featuring unchecked global warming (No Additional Action scenario). Each scenario examined the risks that could develop over a period of 30 years. The participating banks and insurers were asked to model how their businesses could be affected in each scenario. All participating banks and insurers have published climate strategies or net-zero transition plans, which they broadly followed in their responses to all three of these climate scenarios. The key results of the 2021 exercise show that:

    • UK banks and insurers have made good progress in some aspects of their climate risk management but still need to do much more to understand and manage their exposure to climate risks. To produce better estimates of climate risks in their portfolios, banks and insurers will need to prioritize investment in their climate risk assessment capabilities, both by focusing on their internal modeling and data capabilities and doing more to scrutinize data and projections supplied by third-party providers.
    • there is a significant lack of data available on corporates’ current emissions and future transition plans. Banks and insurers will need to prioritize progress on data and will need to put in place interim measures to inform risk management until these data challenges are resolved.
    • climate risks captured in the Climate Biennial Exploratory Scenario are likely to create a drag on the profitability of banks and insurers but there is substantial uncertainty around the true magnitude of these risks. Also, climate risks outside the scope of the this scenario (such as trading losses for banks and mortality risk for life insurers) could be material.
    • a transition to net zero would materially impact a number of sectors that banks and insurers are exposed to, forcing those in such sectors to adapt their business models or potentially risk becoming unviable over time.
    • at an aggregate level, UK banks and insurers are likely to be able to absorb the costs of transition that fall on them. The overall costs will be lowest with early and well-managed action to reduce greenhouse gas emissions and thus limit climate change. Some costs that initially fall on banks and insurers will ultimately be passed on to their customers.
    • banks and insurers have a collective interest in managing climate related financial risks in a way that supports that transition over time.
    • government's public policy on climate will be a key determinant of the speed and shape of changes in the global economy. 

    The findings from Climate BES exercise will inform the Financial Policy Committee’s (FPC) thinking around system-wide policy issues related to climate risk and the Committee’s work in supporting the financial system’s role in the economy’s transition to net zero. The findings will also inform the Prudential Regulation Authority’s (PRA) supervisory policy and approach. In addition, key lessons and themes emerging from the exercise will be shared with the UK government and the international peers of BoE, helping to advance global thinking on how to manage climate-related financial risks, including around the appropriate role of bank and insurer capital requirements.

     

    Related Links


    Keywords: Europe, UK, Banking, Insurance, CBES, Basel, ESG, Climate Change Risk, Stress Testing, Scenario Analysis, FPC, PRA, BoE, Subheadline

    Featured Experts
    Related Articles
    News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    FSB and NGFS Publish Initial Findings from Climate Scenario Analyses

    The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

    November 15, 2022 WebPage Regulatory News
    News

    FSB Issues Reports on NBFI and Liquidity in Government Bonds

    The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.

    November 14, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    EU Finalizes Rules Under Crowdfunding Service Providers Regulation

    The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.

    November 08, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8596