BoE to study climate-related capital further as uncertainties remain

Written by Adam Cadle

13/03/2023

The Bank of England is to study climate-related capital further, as it is not yet sure whether it needs to require insurers and banks to set aside longer-term capital buffers to provide for the consequences of climate change.

In its latest report on climate-related risks and the regulatory capital frameworks, the BoE said “existing capability and regime gaps create uncertainty over whether banks and insurers are sufficiently capitalised for future climate-related losses”.

The BoE said, however, that existing time horizons over which risks are capitalised, usually covering a few years into the future, are appropriate for now given there is not yet sufficient justification for policy changes.

"The Bank will continue to explore how climate risks can be calibrated within the timelines embedded in existing capital frameworks," it said.

The BoE said it would also look at whether "macroprudential," or sector-wide buffers, could be needed.

"A macroprudential response may be justified by the fact that climate change creates foreseeable risks at the system level, but these risks are largely unquantifiable and the Bank is unable to identify which firms they will impact," it said.

"These issues would benefit from further research to inform ongoing policy work."

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