BoE’s prudential regulator to assess bank progress on climate risk plans

April 23, 2024|Written by Moriah Costa

Britain’s prudential regulator will scrutinise UK financial firms’ progress in assessing climate risk and provide guides and tools to help them embed climate risks into their operations.

The Prudential Regulation Authority (PRA), which is part of the Bank of England (BoE), laid out its agenda for the year in its 2024 business plan. The PRA had already set out expectations for how banks and insurers should approach the financial risks coming from climate change in a letter sent on 11 January to banks, including demonstrating processes to identify, measure, manage and mitigate climate risks, as well as consider stress scenarios. It expects institutions to make further progress and show what they are doing to address any barriers.

The financial regulator will also update its supervisory statement on managing climate risks and publish findings on banks’ processes to show the potential impact of climate risk on credit losses.

In addition, the PRA plans to continue expanding on its research agenda from last year, which includes insurance and climate risks, modelling and measuring climate risk and green macroprudential frameworks.

The BoE has come under scrutiny in recent months after governor Andrew Bailey said the central bank had trimmed back its work on climate change in response to chancellor Jeremy Hunt removing climate change from his annual remit letter to the BoE’s financial policy committee.

While advocates have welcomed the news that the PRA is assessing climate-related risks, they say the regulator isn’t going far enough.

Theo Harris, assistant researcher at the New Economics Foundation said the PRA’s good intentions have yet to be backed up. While the regulator has made statements about improving how banks approach climate risks, they have not enforced any penalties against banks that don’t comply, he said.

“The PRA could take [an] example from the [European Central Bank], which has announced significant fines on banks with an inadequate approach to climate-related risks,” he said.

Ellie McLaughlin, a senior policy and advocacy officer at climate finance group Positive Money, said the regulator has not “caught up with the severity of the risk that climate change poses to the financial system, and the role that banks themselves play in fuelling these risks”.

“Ultimately, it’s high time that the PRA moves beyond an approach based predominantly on risk disclosure, and adopts a precautionary approach to climate risk, such as by implementing higher capital requirements for high carbon lending,” she said.

This page was last updated April 23, 2024

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