Finance companies need to do more to address climate risk, says BoE’s Breeden

April 28, 2023|Written by Moriah Costa|Bank of England

Financial firms still have a long way to go to integrate climate change risk into their strategic decision-making, Bank of England (BoE) executive director Sarah Breeden told risk professionals on 18 April.

While there has been progress towards carbon neutrality, such as improved climate disclosures and growth in green finance, “climate risks continue to build and still need to be addressed”, Breeden said.

“We have not yet reached the tipping point where we have built the capabilities and the transition finance infrastructure that will support the right strategic decisions in an unavoidably uncertain transition,” she stated.

Reflecting on the progress the UK has made towards addressing climate change since 2020, she noted that “the shift I had hoped to see in stronger linkages between climate change and strategic decision making across the economy have proved harder to deliver in practice.”

Breeden cited the pandemic, war, and tightening financial conditions as having “reduced our collective ability to take action”. The BoE’s 2021 climate biennial exploratory scenario exercise, or CBES, shed light on the lack of understanding of what climate transition means for firms, she said.

There are four main challenges the financial industry faces towards curbing climate change, Breeden said: the length of time it takes to fill capability gaps in transition finance; unexpected political and economic headwinds; the absence of clarity on the pathway towards net zero; and the difficulty of implementing system-wide change without coordinating action throughout the supply chain.

Speaking on her solutions to these challenges, Breeden emphasised the need to provide the financial sector with forward-looking information “to allocate capital effectively and mobilise finance at scale”.

It is also important for the financial sector to be “nimble and adaptable” in response to unexpected headwinds to continue progressing on long-term climate goals, she said. And while clear policy goals may take years, “firms cannot, and should not, delay taking action to better understand how transition might impact their businesses”, she added.

The BoE set up a guide in 2020 for financial firms to analyse and disclose risks from climate change. It was meant to release new guidance on its regulatory capital framework to address climate change but has since put those plans on hold.

This page was last updated April 28, 2023

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