Bank of England Outlines Climate Change Financial Reporting Risks
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In its new report The Bank of England’s Response to Climate Change, the bank has outlined the physical risks of climate change upon insurers and financial services, and its plans to help the UK financial system and its constituents move to a lower carbon economy.
As part of its plans, the Bank stated it is ‘taking a close interest’ in the Financial Stability Board’s private sector Task Force on Climate-related Financial Disclosure. It is also co-chairing the G20 Green Finance Study Group on behalf of the UK. It is also considering reviewing frameworks for understanding the impact of climate change on the wider economy.
There is evidence that modelling of medium- and long-term factors impacting financial firms fail to fully integrate environmental factors into their financial, and corporate decision-making. ‘While the risk of a sudden and significant system-wide adjustment may not be immediate, the financial risk from an abrupt transition to a lower-carbon economy can increase if, over the coming years, portfolios are not aligned with climate targets,’ the BoE stated.
‘If governments push ahead with climate policies, but investors do not adapt their investment strategies accordingly, misallocation will grow.’ The move comes as listed companies are increasingly focusing on the impact of the environment and supply chain issues in their annual viability statements, which are produced as part of the annual report and accounts reporting process.