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Climate change as financial risk

November 2018: The Bank of England found that only 10 per cent of UK banks actively assess climate risk and recommends that Boards task senior executives with managing climate risk. This shift could introduce climate risk stress tests for banks and hold senior managers accountable.

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The Prudential Regulatory Authority in collaboration with Bank of England (BoE) have released a report in which they assess how UK banks incorporate climate risk in their portfolios. They found that 30 per cent of UK banks are ‘responsive’, 60 per cent are ‘responsible’, but only 10 per cent of banks are ‘strategic’ in their approach. The report concludes with the recommendation that boards should task senior executives with managing climate risk in their institution. 

Applicability

The trend revealed by reports such as this indicates that climate risk is beginning to be viewed increasingly seriously within the mainstream banking system, and there are indications that a climate ‘stress test’ could be introduced for UK banks. Consequentially, senior managers could be held accountable for failing to manage climate risk appropriately


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Academic

Campiglio, E., et.al., 2018. Climate Change Challenges for Central Banks and Financial Regulators. Nature Climate Change, 8 (6), 462.

 

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The views expressed in these external research papers are those of the authors and do not represent an official position of CISL, the University of Cambridge, or any of its individual business partners or clients.