BOE to Step Up Scrutiny of Climate-Related Risks on U.K. Banks

(Bloomberg) -- Bank of England Governor Andrew Bailey said he’s stepping up scrutiny of how U.K. financial institutions are identifying climate-related risks, saying the issue is already starting to have an impact on the economy.

“As we enter 2022, we will be shifting gears in our supervisory approach domestically to ensure firms are identifying and addressing climate related financial risks,” Bailey said Wednesday in a speech to the COP26 conference in Glasgow, Scotland. “Rather than focusing solely on enabling, we will through active supervision be focusing also on ensuring our supervisory expectations on climate are met.”

The remarks underscore the central bank’s increasing focus on the environment as governments around the world adopt targets to zero out emissions that damage the atmosphere. Rising temperatures along with efforts to clean up polluting industries point to a potential upheaval in financial markets in the years ahead, and Bailey wants the financial system to build its resilience to cope with those issues.

“We must be able to manage the resilience and thus economic effects of the transition as we reduce the use of hydrocarbons but still rely on them,” Bailey said.

The BOE’s regulatory arm will “will request clear plans” from banks and “exercise of its powers” as a supervisor of the industry, he said. The central bank already expects institutions to hold capital against material climate-related financial risks. It’s also prodding those companies to channel their investments toward green energy.

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