BoE to set out new guidelines for how banks and insurers should manage climate change
(26 September 2018 – UK) Banks’ planning horizons are too short to incorporate climate risks the Bank of England has found after conducting a probe into the sector.
The BoE’s Prudential Regulation Authority undertook the survey after central bank governor, Mark Carney, warned of the “catastrophic impacts” of climate change and the possible destabilising impact it could have on the financial system.
Mr Carney said one problem was banks’ planning horizons were to short to incorporate climate risks – on average the banks surveyed had four-year planning horizons.
The report said that while 60 percent of the banks surveyed, which were 90 percent of those the PRA regulates, consider climate change as a short-term financial risk. Only 10 percent take a strategic, long-term view of climate impacts.
Two types of climate change related risk were identified in the report: physical risks such as extreme weather events, and transition risks from changes in policy and technology.
The findings include that most banks surveyed are actively reducing their exposure to greenfield cola mines and new coal-fired power plants. However, in other areas banks are doing far less, for example very few have modelled the impact that increased flooding could have on insurance premiums for the mortgage portfolios.
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