Only a small fraction of banks in Britain are planning properly to mitigate risks to their businesses from climate change, the Bank of England said on Wednesday, adding it would push lenders to take action.
The British central bank, which oversees the City of London global financial hub, said it would consult with banks to show what it expected them to be doing and said bank directors had to engage on climate change and the shift to a low-carbon economy.
Governor Mark Carney, who has pushed climate change issues to the center of the BoE’s regulatory mission, said lenders had failed to grasp the scale of the challenge.
“For banks, the financial risks from climate change have tended to be beyond their planning horizons,” Carney said
The BoE said just one in 10 of banks in a survey it conducted covering 90 percent of the sector were managing climate change risks with long-term, comprehensive plans.
Banks have begun to consider the most immediate physical risks to their business models such as exposure to mortgages on homes that are at risk of flooding, or to investment in countries that could be hit by extreme weather, the BoE said.
But 30 percent of them still only considered climate change as a corporate social responsibility issue, the BoE said.
The BoE’s Financial Policy Committee will consider whether risks from climate change to financial stability should be part of regular stress testing of lenders.
“Financial policymakers will not drive the transition to a low-carbon economy, but we will expect our regulated firms to anticipate and manage the risks associated with that transition,” Carney said.
In 2015, he told the insurance industry to take a more urgent approach to preparing for climate change, saying the speed at which assets such as coal, oil and gas reserves are re-priced could pose potentially huge financial risks.