BoE publishes first climate disclosure

The Bank of England (BoE) published its first climate-related financial disclosure, following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The bank has been a leading supporter of the TCFD since its inception, and its climate risk disclosure sets an example for its fellow members of The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and the Bank for International Settlements (BIS) as they begin to grasp the implications of climate change and its substantial and systemic risks to financial and economic stability.

“It is vital the Bank continues to lead on the financial risks from climate change,” said Governor Andrew Bailey in his introduction to the disclosure, pledging to maintain climate risk as one of the bank’s “key strategic priorities” and referencing his predecessor, Mark Carney.

The BoE’s climate-related financial disclosure 2020 outlines a climate strategy structured around three themes: 

1. Risk – ensuring that firms and investors can measure and manage the financial risks from climate change
2. Reporting – a common reporting and disclosure framework built on the TCFD
3. Return – helping firms and investors better identify the “frictions and the opportunities” in the transition to a carbon-neutral economy. 

The disclosure is separated into two distinct sections, dividing the BoE’s institutional functions from its far more significant policy holdings. In the first section, the bank highlights its implementation of an internal carbon price (initially set at £45/tonne CO₂) and that it is supplied with 100% renewable energy.

The second section reveals the bank’s Asset Purchase Facility’s corporate portfolio is aligned with a global temperature increase of 3.5C – a temperature target that is far beyond the 1.5C target of the Paris Agreement which is necessary to avoid dangerous climate change.

The disclosure also reveals that the BoE has started to incorporate climate-related risk factors into methodologies used to assess counter-party risks and climate-related factors have begun to inform risk assessment methodology for sovereign exposures. Climate-related risk questions are also included in the Due Diligence Questionnaire for loan collateral, and thus contribute to assessments of collateral assets to determine eligibility and appropriate haircuts. 

The report’s publication follows widespread criticism from economists, business leaders and campaigners over support given to high-emitting industries during the Covid-19 pandemic. However green the BoE’s offices, unless it begins to differentiate between the causes of climate change and the solutions, its holdings will continue to reflect a world accelerating into climate catastrophe.