The Bank of England has ordered banks to act immediately or face annual returns of up to 15%.

The warning comes after the first comprehensive examination of how Britain’s financial system will cope with climate change and the stresses associated with transitioning to a net zero carbon economy by 2050.

The BoE says banks and insurers will be able to manage these costs if they act now – but any delay could mean costs for them and their customers. they are taller.

“The first important lesson from this exercise is that over time, climate risks will become a persistent drag on the profitability of banks and insurers,” said BoE Deputy Governor Sam Woods. – especially if they don’t manage them effectively.

“While they vary across companies and scenarios, the overall loss ratio equates to an average drag on annual returns of around 10-15%.”

The stress test involved measuring the ability of 19 banks and insurers to understand how climate change will affect their business models and whether they have enough capital to finance experience climate-related risks.

These may include things like a decrease in the value of their assets and other assets on their books, even though there is no pass or fail because the test is still experimental.

The worst-case scenario is that no additional measures are taken to cut global temperature rise.

Under this scenario, properties at risk of flooding would be nearly impossible to insure, and banks and insurers could face losses of up to £350 billion if they don’t. take any action.

“To the extent that climate change worsens the distribution of future shocks, that could imply higher capital requirements, all else being equal,” Mr. Woods said. Equality.”

However, Mr Woods warned that banks and insurers would have to continue to finance the carbon-intensive sectors of the economy to ease net transition.

“Cutting financing to these companies too quickly could backfire and have wide-ranging macroeconomic and social consequences, including higher energy prices – potentially equivalent similar to the negative effects we’re experiencing today.”


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