Banks and climate change: the issue heats up
The Bank of England (BoE) has made a landmark decision over how it intends to tackle climate change in the banking sector as part of the UK’s transition to a low-carbon economy.
The BoE recently announced its intention to initiate ‘a review of climate-related risks in the UK banking sector’, the first of its kind, although exact details of the approach have not yet been made clear.
These risks arise from either:
- The actual physical consequences of climate change as a result of floods, droughts, storms and the ability of the financial system to recover from and respond to these consequences; or
- Maintaining stability in the transition to a low-carbon economy with the associated risks and opportunities of doing so including the threat of the emergence of new disruptive technologies and innovators.
The announcement is timely as it coincides with the publication of the final recommendations of the Financial Stability Board Task Force on Climate-related Financial Disclosures (FSB TCFD).
‘The tragedy of the horizon’
Mark Carney is both the Governor of the Bank of England and chair of the international Financial Stability Board (FSB). He appointed Michael Bloomberg (former mayor of New York) to chair the task force that would develop a set of voluntary recommendations aimed at assisting organisations to provide details of their climate-related risks and opportunities to investors, lenders and other stakeholders.
In his capacity as BoE Governor, Mr Carney has previously warned of the risk that climate change poses to the financial sector which he has referred to as ‘the tragedy of the horizon.’
Following the Paris agreement, Mr Carney indicated that it was unlikely that we would achieve the goal of maintaining the rise in global temperatures at well below 2° Celsius if the private sector did not get on board. As a result, businesses need more information and need to be more open and transparent about the risks and opportunities they face in the transition to a low-carbon economy.
Draft voluntary recommendations were issued by the task force for consultation back in December 2016. The findings and feedback from this consultation process have now been considered and the final recommendations have been issued by the task force today.
The task force now invites and encourages businesses to voluntarily adopt their recommendations and will monitor the extent to which they are being applied throughout their continuing programme of monitoring and feedback activities culminating in the issue of a monitoring report in the second quarter of 2018.