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The Bank of England (BoE) says that risks associated with the transition towards a net-zero economy could have a big, but not fatal, impact on the financial health of counterparties in its lending operations as advocates call for even broader disclosures on climate.
The bank’s climate-related financial disclosure is an annual publication that reveals how the BoE is managing the risks from climate change.
The report said that the value of the BoE’s holdings of sovereign bonds could fall by over 9% in the most adverse climate scenario, a figure comparable to previous reports.
The BoE said it has created a new toolkit to assess risks to counterparties in its lending operations. This suggests that transition risks could “materially impact” the Common Equity Tier 1 ratio – a measure of core equity capital – of these counterparties but would not threaten their solvency.
The BoE has also expanded its disclosure to include the indexed long-term and short-term repo lending facilities which have become more important as the bank has shifted to a repo-led operating framework.
“It’s welcome to see broadened disclosure of emissions associated with the bank’s regular lending facilities but the bank should be assessing and disclosing the environmental impacts of the collateral it lends against, not just the banks it lends to,” said Ellie McLaughlin, senior policy and advocacy manager at thinktank Positive Money.
In last year’s disclosure, the BoE said it was taking several steps to mitigate climate-related financial risks to residential mortgage collateral, which it said represents the majority of its collateral.
The BoE said in the latest disclosure that it had enhanced its methodologies to measure climate financial risks in sovereign bonds and developed a toolkit to assess credit risks to financial institution counterparties.
“This disclosure reflects our commitment to transparency, accountability and collaboration. By sharing our progress and insights, we aim to contribute to the collective effort required to foster a resilient financial system and support sustained economic growth,” said chief operating officer Sarah John.
The Financial Times reported recently that the BoE has shifted its attention away from climate and nature risk since Andrew Bailey took over as governor, according to senior staff members who resigned from working on those issues at the central bank.
McLaughlin from Positive Money noted that the bank’s latest disclosure has retained the same three focus areas in its climate strategy as last year, when it removed a previous reference to supporting an orderly transition to net zero.
“It’s disappointing that the Bank of England has not updated its climate strategy after reducing its ambition last year, despite a clear signal from the new government to re-prioritise climate and the increasing evidence of climate change and nature loss driving inflation,” she said.
The Labour government has reinstated climate change as an important objective of central bank policy but it is sending mixed messages on the centrality of the goal as it seeks to revive growth in the UK economy, experts say.
Chancellor Rachel Reeves told the BoE’s financial policy committee in its annual remit letter that the climate and nature crisis is the greatest long-term global challenge and the risks it poses are relevant to its primary objective of maintaining financial stability. However, Reeves has also said she would prioritise growth over reaching net zero if forced to choose.
In the new disclosure, the BoE said its climate strategy reflects the remit set by the chancellor in the annual letters: “Climate-related considerations are relevant to the Bank’s mission, functions and operations and are therefore embedded in its governance framework.”
Under former governor Mark Carney, the BoE was considered a world leader in addressing climate change. However, it slipped down the rankings in last year’s edition of the Green Central Banking Scorecard compiled by Positive Money after Reeves’ predecessor Jeremy Hunt removed climate change from his remit letter in 2023.
This page was last updated June 30, 2025
Written by
Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
