Climate change

Our response to climate change

The Bank of England's response to climate change
Greenhouse gas emissions are changing our climate at a rapid pace. These changes come with some risks.		The response to climate change will bring changes to society and the economy. These changes come with some risks.
Physical risks Like extreme weather events (floods and heatwaves etc.) and longer-term changes to our climate (sea level rise etc.)	The risks affect the financial system and the economy.	Transition risks You can think of these as changes that governments, industries and consumers make in pursuit of a greener world.
This matters to our mission, which is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. And that puts climate change at the heart of our prudential, financial stability and monetary policy objectives and the way we run our operations.
We have acted and will continue to act proactively to address the risks from climate change. Our efforts are driven by our climate objective and goals.

Climate change, the economy and financial system

Climate change affects our planet, our economy and our financial system. So it is relevant to the Bank of England’s central mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.

The rise in human activity – and the subsequent carbon and other greenhouse gas (GHG) emissions – since the industrial revolution has already had a considerable and measurable impact on our planet’s climate. Scientists estimate that global temperatures have risen by around 1°C since 1850, and could exceed 4°C by the end of this century if nothing is done to limit emissions.

For this reason, over 190 countries signed up to the Paris Agreement in 2015, which set out a global framework for combating climate change. Its primary goal is to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels. Over recent years, more than 130 countries have announced their ambitions to reduce emissions to net zero, with many, including the UK, setting legally binding targets.

Achieving these targets will require large-scale reductions in GHG emissions globally. Estimates by bodies such as the Intergovernmental Panel on Climate Change (IPCC) suggest that countries must have net-zero emissions by 2050 to achieve this. The transition to net-zero emissions would affect all countries, sectors, and would involve unprecedented structural change to the global economy.

The risks from the physical effects of climate change and the transition to a net-zero economy are relevant to our mission to maintain monetary and financial stability. In particular, these risks pose a threat to the stability of the wider financial system, and the safety and soundness of firms we regulate. 

The Bank’s climate work is spearheaded by two executives - Sarah Breeden (Executive Director for Financial Stability Strategy and Risk), who covers the Bank’s policy functions, and Ben Stimson (Chief Operating Officer), who covers the Bank’s physical operations. Read speeches by members of our senior team to find out more about our response to climate change.

Latest updates and key speeches

Latest updates

30 July 2024: The Bank published its Climate-related Financial Disclosure 2024, alongside its 2024 Annual Report. The disclosure sets out the Bank’s key climate-related developments in the year to 29 February 2024. It reports on: the climate risks, to which the Bank is exposed; the emissions associated with the Bank’s own financial and physical operations (considered a proxy for financial risk); and the Bank’s work on climate change in pursuit of its core mission.

17 April 2024: The Bank published a Quarterly Bulletin that explores how central banks and financial institutions can use scenario analysis to measure climate-related financial risks. It focuses on how central banks and financial institutions can ‘extend’ macro-climate scenarios to undertake granular asset-level analysis of financial risks, drawing on examples from the Bank’s financial operations across sovereign bonds, corporate bonds and residential mortgages.

6 July 2023: The Bank published its Climate-related financial disclosure 2023 and Climate transition plan, alongside its 2023 Annual Report. The disclosure document reports on the Bank’s work on climate change in pursuit of its core mission, the climate risks it is exposed to and the emissions from its own physical and financial operations. The transition plan announces the Bank’s commitment to reduce greenhouse gas emissions from its physical operations to net zero by 2040 and sets out the Bank’s approach to achieve this.

22 March 2023: The Climate Financial Risk Forum (CFRF) held a symposium to celebrate the forum’s achievements over the past year through a varied programme of speeches and practical sessions. Highlights included speeches from Baroness Penn, HM Treasury Parliamentary Secretary; Richard Barker, International Sustainability Standards Board (ISSB) member; fireside chat between Sarah Breeden and Amanda Blanc, Aviva CEO; and discussion with working group representatives. The forum also completed the release of its third round of guides and other materials to help the financial sector address climate-related financial risks and opportunities. The forum is now in discussion about how to best to progress work in the fourth round.

13 March 2023: The Bank and the PRA published the report on climate-related risks and the regulatory capital frameworks. The report brings together key findings which have been informed by a range of sources – notably the research submitted to our call for papers and the discussions at the Climate and Capital conference in October 2022.

Recent speeches

18 April 2023: Sarah Breeden said the UK is making good progress in turning aspiration into climate action. But she said we haven’t yet reached the point where we have the skills and tools that drive the right actions, given the unavoidably uncertain transition to net zero. Sarah emphasised that governments, business, finance and central banks all have unique roles in getting us there.

6 September 2022: In this speech, Sarah Breeden discussed nature-related financial risks, specifically exploring potential financial risks arising from the effects of nature loss. Sarah also outlined the need for collaboration between multiple stakeholders to address these risks.

8 June 2022: Stefan Claus spoke about how prepared the UK’s largest insurers are for the financial risks caused by climate change. Although recent tests show an improvement to risk management, there is still more to do to bridge gaps in available climate data.

24 May 2022: In this speech, Sam Woods discussed the findings of our Climate Biennial Exploratory Scenario (CBES) exercise, when the results were published.

7 April 2022: Sarah Breeden spoke about the economy balancing on the net-zero tightrope, emphasising the role of central banks in supporting it. 

3 November 2021: At COP26, Andrew Bailey spoke about how we are helping to lay the foundations for a net-zero financial system. 

UK financial regulation and supervision

Prudential supervision

The risks from the physical effects of climate change, as well as the transition to net zero, pose a threat to the stability of the wider financial system, and the safety and soundness of firms we regulate.

In April 2019, building on both our 2015 insurance report and 2018 banking report, we became the first central bank and supervisor to set supervisory expectations (Supervisory Statement 3/19) for banks and insurers on the management of climate-related financial risks, covering governance, risk management, scenario analysis and disclosure. This set out our expectations that firms take a strategic approach to managing climate-related financial risks, identifying current risks and those that can plausibly arise in the future, and appropriate actions to mitigate those risks.

We followed this up with a ‘Dear CEO letter’ to firms in 2020. This letter set out more detailed guidance on how firms should embed their approaches to managing climate-related financial risks by the end of 2021. This letter built on the expectations set out in Supervisory Statement 3/19, and provided observations on good practice and set out next steps for implementation.

In October 2021, we published our second climate change adaptation report (CAR) which set out the progress firms have made on managing climate-related risks, our supervisory strategy for 2022, and the potential role of capital requirements.

From 2022 onwards, we have moved towards actively supervising regulated firms against our supervisory expectations we set out in SS3/19. Addressing the risks from climate change is now a core component of our supervisory approach, and we expect firms to meet these and to make improvements where these are required.

The PRA reviewed firm’s progress in embedding, and, in summary, found that firms are taking positive and concrete steps, however, further progress is needed by all firms. In October, we published a Dear CEO letter to provide thematic feedback to firms on their progress on embedding SS3/19 and from undertaking the Climate Biennial Exploratory Scenario (CBES).

In March 2023, the Bank and the PRA published a report on climate-related risks and the regulatory capital frameworks. This report sets out the Bank’s latest thinking on the extent that climate-related risks might be captured by the regulatory capital frameworks, and focus areas identified in the 2021 CAR to understand the materiality of the gaps.

Climate Financial Risk Forum

In March 2019, together with the Financial Conduct Authority (FCA), we established the Climate Financial Risk Forum (CFRF) to build capacity and share best practice across industry and financial regulators to advance our sector’s responses to the financial risks from climate change. The forum is chaired by David Bailey (Executive Director, Prudential Policy, Bank of England) and Sheldon Mills (Executive Director, Consumers and Competition, FCA).

It brings together senior representatives from across the financial sector, including banks, insurers and asset managers. During its work, the forum has convened various working groups to produce practical guidance incorporating best practices in areas such as risk management, scenario analysis, disclosure and innovation and the transition to net zero.

In June 2020, the CFRF published its guide to help the financial industry approach and address climate-related financial risks.

In October 2021, the second round of guides were published to further help the financial sector develop best practices to manage climate-related financial risks and opportunities. These guides are written by industry, for industry and build on the 2020 guide, focussing on risk management, scenario analysis, disclosure, innovation and climate data and metrics. The guides aim to help firms accelerate their efforts in responding effectively to climate-related financial risks and opportunities. In particular, the risk appetite statements, scenario analysis guide, disclosure case studies and the climate data and metrics dashboard have been designed to support firms overcoming the significant challenges that they have encountered so far in embedding climate risk management in their organisations.

The CFRF’s third round of guides and other materials, such as webinars and metrics dashboard, were published in two tranches, in December 2022 and March 2023. Continuing to build on the CFRF’s previous publications focus on three areas: scenario analysis; climate disclosure, data and metrics and the findings from a new working group focussing on the transition to net zero.

In October 2024, the CFRF fourth round of guides were published focusing on short-term scenario analysis, nature and adaptation.

Climate-scenario analysis and stress testing

Climate scenario analysis is a key part of our toolkit for understanding the macroeconomic and financial risks that could arise from climate change. Climate scenarios allow for the exploration of impacts and exposures at the level of the financial system under a range of different future pathways. 

In June 2021, we published the Key Elements of our 2021 Biennial Exploratory Scenario(CBES). The CBES explored the resilience of UK banks and insurers to the financial risks associated with the physical impacts from climate change and the transition to a net-zero economy under three scenarios; Early, Late and No Additional Action. Each of the scenarios in our CBES built on a subset of the second phase of scenarios published by the Network for Greening the Financial System (NGFS).

This is the first time we assessed the resilience of both UK banks and insurers to climate-related risks. The CBES allowed the Bank to capture the interactions between different firms and understand the risks presented by climate change to the financial system in aggregate. 

We published the results of the CBES exercise in May 2022. The results indicated that climate risks captured in the exercise are likely to create a drag on the profitability of UK banks and insurers, particularly if they are unable to manage these risks effectively.

The CBES built on our Insurance Stress Test for 2019, which included an exploratory exercise in relation to climate change. The set of climate scenarios explored the impacts to both firms' liabilities and investments stemming from physical and transition risks.

Research on climate change

The potential macroeconomic and financial stability implications of climate change and the transition to a net-zero economy are a key focus within our Agenda for Research.

As part of our work on climate change, we research key topics, participate in conferences and host workshops. To date, this has included:

April 2024: Published a Quarterly Bulletin on how central banks and financial institutions can use scenario analysis to measure climate-related financial risks.

October 2022: 

• Published a Quarterly Bulletin on how climate change - and the response of governments at home and abroad to it - will affect the macroeconomy, both over shorter horizons and the longer term.
• Published a Bank Underground article on climate and capital risk weights.
• Hosted the Climate and Capital conference, and published this note, which synthesise relevant research and broader public commentary on each of the issues discussed at the conference.

September 2022: Published a Staff Working Paper Series to examine the effects of subsidised flood insurance on real estate markets.

May 2022: Hosted the 2022 Chief Economist’s Workshop on "The implications of climate change for the macroeconomy and the formulation of monetary policy", bringing together early thinking of how climate change could affect monetary policy frameworks. 

February 2022: Launch of the call for research papers for the Climate and Capital conference to be held in October 2022.

October 2021: A joint research conference with Banca d'Italia on the macro-financial impacts of climate change and the net-zero transition.

April 2021: Staff Working Paper on climate policy and transition risk in the housing market.

International engagement and initiatives

The financial and economic consequences of climate change are not solely domestic concerns. We therefore play an active role in supporting a co-ordinated international approach to climate change - for example, through our work with other central banks and financial supervisors, playing prominent roles in international fora (such as the G7 and G20), and by working with the Government to deliver on its COP26 agenda (held in November 2021). This year we look forward to engaging internationally through COP28, being hosted by the UAE.

We also engage in the climate-related workstreams of standard-setters and international bodies. For example, we are contributors to the climate-related work of the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).

We are also co-founders of the Sustainable Insurance Forum (SIF). SIF is a global network of insurance supervisors and regulators, who are working together on sustainability challenges facing the insurance sector, including climate change.

In 2020, the SIF published a climate-related question bank for insurance supervisors and, alongside the International Association of Insurance Supervisors (IAIS) - chaired by, Vicky Saporta our Executive Director of Markets, published a landmark draft paper on the supervision of climate risks in the insurance sector. 

Central Banks and Supervisors Network for Greening the Financial System (NGFS)

We are a founding member of the Central Banks and Supervisors Network for Greening the Financial System (NGFS) and sit on the steering committee. Through the NGFS, we aim share our own experience, learn from others, and promote consistent and effective responses to climate-related financial risks by central banks and supervisors across the world.

December 2017: The NGFS was co-founded by eight central banks and supervisory authorities. Since then, its membership has grown to over 100 members and observers.

March 2020: Sarah Breeden took on the chair of the NGFS on Scenario Design and Analysis. Through this, we played a leading role in developing the NGFS’s understanding of the macroeconomic and financial risks arising from climate change.

June 2021: The NGFS published its second vintage of the NGFS scenarios, along with a dedicated website, which were developed to provide a common starting point for analysing climate-related financial risks under future climate pathways. To support implementation of these scenarios, WS2 also published a guide to climate scenario analysis for central banks and supervisors. 

October 2021: The NGFS published its ‘Scenarios in Action’ report on the application of NGFS climate scenarios by central banks and supervisors to date.

April 2022: Sarah Breeden’s tenure as chair of the NGFS workstream on Scenario Design and Analysis concluded. However, the Bank continues to be an active member of the workstream.

May 2022: The Bank, through James Talbot, took on the Chair of the NGFS workstream on Monetary Policy, tasked with deepening the collective understanding of how climate change and climate policies should be considered in relation to the conduct of monetary policy. This was part of the wider NGFS update for their 2022-2024 work program. 

September 2022: The NGFS published the third vintage of climate scenarios for forward looking climate risks assessment. These were aimed at fostering the integration of climate-related risks into the work of central banks and supervisors, and beyond.

Supporting enhanced climate disclosure

To allow markets to better assess, price and manage climate-related financial risks, the Financial Stability Board (FSB), at the request of G20 leaders, established the industry-led Task Force on Climate-related Financial Disclosures (TCFD) in 2015.

We use this framework for our own annual climate-related financial disclosure, which was first published as part of our annual reporting for the financial year 2019/20, and sets out our approach to managing climate-related financial risks.

We are an official supporter of the TCFD recommendations. In November 2020, we, alongside others in the joint UK Government-Regulator TCFD Taskforce, set out a roadmap towards mandatory TCFD-aligned climate disclosures across the UK economy by 2025.

In October 2021, the UK Government set out more information on their proposed Sustainability Disclosure Requirements (SDR) in their Sustainable Finance Roadmap and the 2023 Green Finance Strategy sets out further detail on the timeline. The SDR will provide an economy-wide framework to support the greening of the UK financial system and alignment with the UK’s net-zero commitment. It will cover UK corporates, investment products and investment portfolios, and will streamline the UK’s existing disclosure requirements (e.g. mandatory TCFD-aligned climate disclosures) with new requirements.

At an international level, the Bank supports the International Sustainability Standards Board’s (ISSB) global climate disclosure standards, which were issued on 26 June 2023. The standards (S1 and S2) build on the TCFD framework and recommendations to set a high-quality, comprehensive global baseline for climate-related financial disclosure focused on the needs of investors and the financial markets.

We continue to actively engage with the ISSB to support their work on climate disclosure, including its interoperability with other climate disclosure standards to promote global consistency.

Supporting increased technical co-operation and assistance

We support the work of other central banks and financial regulators on climate change, in part through our Centre for Central Banking Studies (CCBS).

For decades, we have provided international central banking technical co-operation and assistance to equip central bankers and financial regulators with the skills and knowledge they need to tackle the challenges they face. In recent years, this has included assistance on climate change.

In partnership with the UK’s Foreign, Commonwealth and Development Office (FCDO), we are hosting a series of workshops on climate change in 2021 and 2022. These are aimed at central bankers and financial regulators who handle climate related issues in their institutions. In September 2021, we held a global workshop on climate-scenario analysis and stress testing, with over 330 central bankers and supervisors spanning 65 countries in attendance. Find out more about our workshop programme.

We support the Central Banks’ and Supervisors’ Climate Training Alliance (CTA), established by the Bank for International Settlements (BIS), International Association of Insurance Supervisors (IAIS), NGFS and SIF. The CTA aims to support technical cooperation and assistance on climate-related financial risks among central banks and financial supervisors.

Nature-related financial risks

There is growing awareness that nature-related risks could affect the economy and financial system, and pose a threat to the stability of the wider financial system, and the safety and soundness of firms we regulate. We recognise that there is potential for changes in the environment beyond those directly attributable to climate change to create financial risks.

In line with their remit and recommendations letter, in the July 2022 Financial Stability Report the FPC considered the potential relevance of other environmental risks to its primary objective. They concluded that collective understanding of how nature risks could give rise to financial risks is in its infancy globally and so the Bank should seek to build its understanding of how environmental risks might give rise to financial risks and the potential materiality for UK financial firms and so the UK financial system, drawing on others’ work as appropriate. 

In September 2022, Sarah Breeden delivered a speech to discuss nature-related financial risks in the context of exploring potential financial risks arising from the physical and transition impacts of nature loss as well as the need for collaboration between real economy regulators, financial regulators and industry, to address these risks.

Financial operations

Climate-related financial disclosure 2023/24

The Bank continues to demonstrate best practice in climate risk reporting on its financial asset holdings by disclosing analysis of its sovereign and corporate asset holdings, as well as some collateralised lending. Collectively, the Bank’s analysis suggests that its largest exposure - its sovereign bond holdings - continue to be exposed to material climate-related financial risks, but those risks remain lower than a G7 reference portfolio:

• Scenario analysis suggests that the value of the Bank’s sovereign bond holdings could fall by up to 10% in the most adverse climate scenario. This assumes that markets immediately and fully price in the effects of a very adverse scenario on future interest rates and debt levels. However, these effects are uncertain and will be determined by the actions of governments, central banks and financial markets. 

• Implied Temperature Rise metrics for the Bank’s sovereign bond holdings suggest the Bank’s sovereign bond holdings are aligned with the 2°C Paris goal, but not with the 1.5°C ambition. 

Alongside this work, the Bank is taking several steps to mitigate climate-related financial risks to residential mortgage collateral posted in the Sterling Monetary Framework. These approaches mitigate the Bank’s exposure to transition and physical risks facing owner-occupied and buy-to-let mortgage collateral.

Scenario analysis

In April 2024, the Bank published a Quarterly Bulletin that explores how central banks and financial institutions can use scenario analysis to measure climate-related financial risks. These risks are relevant to the Bank of England, given its significant financial operations. This article focuses on how financial institutions can ‘extend’ macro-climate scenarios to undertake asset-level analysis of financial risks, drawing on examples across sovereign bonds, corporate bonds and residential mortgages.

Greening the Corporate Bond Purchase Scheme

In March 2020, Governor Andrew Bailey outlined our intention to assess ways that our holdings of corporate bonds could be adjusted to take the climate impact of issuers into account while still meeting our monetary policy objectives.

Following a change to the Monetary Policy Committee (MPC) remit in May 2021, we set out in a Discussion Paper in May 2021 our proposals for ‘greening’ our Corporate Bond Purchase Scheme (CBPS). Andrew Hauser set out the approach proposed in this Discussion Paper in his speech: It’s not easy being green – but that shouldn’t stop us: how central banks can use their monetary policy portfolios to support orderly transition to net zero.

The purpose of this Discussion Paper was to seek feedback on the principles that might guide how best to incentivise transition to net zero via the CBPS; and the tools we might use to do it. It highlighted some of the key challenges and design choices and set out a number of questions on which we gathered feedback. 

In November 2021, we set out our approach to greening the CBPS. This followed the publication of a CBPS Discussion Paper, and subsequent engagement with a wide range of stakeholders including net zero investment experts, asset managers, climate groups and the wider public. The approach, published alongside a Market Notice, implements the principles set out in the Discussion Paper. Adjustments to the CBPS would commence from November 2021. A programme of reinvestment operations based on this framework was completed between November 2021 and January 2022. More information on this can be found in the Bank’s 2022 and 2023 climate-related financial disclosures. Following the MPC’s decision to begin exiting quantitative easing in February 2022, the CBPS has now been completely unwound.

Physical operations

We are committed to running our own physical operations responsibly and sustainably.

In 2020, we set a target of reducing our absolute greenhouse gas emissions by 63% from 2016 to 2030, covering our Scope 1 emissions (use of natural gas, fuel and refrigerants), Scope 2 emissions (electricity) and travel emissions included within Scope 3 emissions. This level of reduction is consistent with aligning emissions from our physical operations to the goals of the Paris Agreement.

We remain on track to meet our 2030 carbon target, but recognise we need to go further. In June 2021, we committed to target net-zero greenhouse gas emissions from our physical operations more broadly by 2050 at the latest. In June 2022, we committed to publish our transition plan for reaching this net-zero goal for our physical operations. And in June 2023 the Bank published its first Climate Transition Plan (CTP), which announced the Bank’s commitment to reduce greenhouse gas emissions from its physical operations to net zero by 2040 and set out the Bank’s approach to deliver that commitment, including interim milestones.

In 2023/24 the Bank remains broadly on track to meet the CTP net-zero pathway and interim milestones. Further details on the Bank’s reporting timeline and approach to baselining are set out in Box D of the Bank’s Climate-related Financial Disclosure 2023/24.

Our Greener Bank programme aims to reduce the environmental impact of our day-to-day operations.