City must ready itself for climate change, says Bank of England and FCA
By Abigail Townsend
Date: Monday 15 Oct 2018
(Sharecast News) - The Bank of England and the Financial Conduct Authority have called on the City to better manage the financial risks of climate change.
The Bank's Prudential Regulation Authority, which was set up five years ago to ensure financial institutions are run in a safe and sound way, said UK insurers, banks, building societies and investment firms needed to do more when it came to climate change.
It has published a consultation paper on a draft supervisory statement, asking firms to assess how "managing the far-reaching and foreseeable risks from climate change requires a strategic approach which consider how actions today affect future financial risks".
In a statement, the PRA added: "Climate change and society's response to it presents financial risks that are relevant to the PRA's objectives of safety and soundness.
"While these risks may crystallise in full over longer-time horizons, they are becoming apparent now. Firms are enhancing their approaches to managing these risks but more need to take a forward-looking strategic approach if financial risks are to be minimised."
At the same time, the FCA published a discussion paper on the impact of climate change and growing demand for green finance on financial services.
FCA chief executive Andrew Bailey said: "Climate change presents a disruptive and potentially irreversible threat to the planet. The impact of climate change on financial markets is uncertain but legal frameworks - at a global, European and UK level - have already begun to adapt to reflect a move to a low carbon economy.
"The FCA can play a key role in providing more structure and protection to consumers for green finance products and ensuring that the market develops in an orderly and fair way which meets users' needs."
The FCA added that it had been working closely with the PRA to develop a "joined up approach to enhance the resilience of the UK financial system".
The FCA has set out four areas where greater regulatory focus may be warranted: the impact climate change has on pensions; enabling competition and market growth for green finance; ensuring disclosure in capital markets about the impact of climate change is adequate; and potentially making financial services firms publicise how they manage climate risks.
The Bank's consultation paper, meanwhile, has set out four key areas firms need to look at when it comes to climate change: governance, risk management, scenario analysis, and disclosure.
It said: "The PRA will embed these expectations into its existing supervisory framework and expects firms' response to be proportionate to the nature, scale and complexity of their respective businesses."
The consultation will end on 15 January 2019.
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