Legal & Regulatory News

​Bank of England publishes results of its 2021 Climate Biennial Exploratory Scenario

On 24 May 2022, the Bank of England (BoE) published the results from its 2021 Climate Biennial Exploratory Scenario (CBES), highlighting that UK banks and insurers need to do much more to understand and manage their exposure to climate risk.

The aim of the CBES was to better understand the extent of the exposure of the UK's financial system, mainly of its largest banks and insurers, to climate-related risks. The CBES looked to gauge the challenges to the business models of these institutions, and to assist in the management of climate-related financial risks.

The results of the CBES highlight that climate risks are likely to create a drag on the profitability of UK banks and insurers. However, the projections made by these institutions suggest that overall costs can be minimised with early and well-managed action to reduce greenhouse gases. The results also suggest that, whilst more needs to be done, institutions have made good progress in some aspects of their climate risk management. Nonetheless, the results suggest that firms still need to improve their climate risk management capabilities around data (including use of data from third-party providers) and should prioritise investment in climate risk assessment capabilities.

As part of the CBES, the BoE will provide feedback to participants and work with institutions to establish best practice as well as supporting initiatives to fill data gaps. The findings of the CBES will also inform the PRA’s supervisory policy and approach to managing climate risks.

Click here to view the results in full.