The PRA has published a report outlining the Bank of England's latest thinking on climate-related risks, regulatory capital frameworks and future areas of research and analysis.
The PRA published a report on 13 March focusing on climate-related risks and the regulatory capital frameworks.
The report updates on the bank’s work on climate risk and the capital framework, building on the analysis in the Climate Change Adaptation Report (CCAR) and outlining the progress the Bank of England has made since the CCAR.
To ensure that firms and the banking system are resilient to climate change risks, the BoE has outlined key next steps:
- Ensure that firms can address the capability gaps to improve identification, measurement and management of climate change risks.
- Develop the toolkit to test the financial system’s resilience against climate risks, including how stress tests and scenarios can help banks understand exposure of the financial systems to risks not captured by the CBES.
- Understand material regime gaps in the capital frameworks, the potential systemic risks of climate change and exploring if changes to the macroprudential framework is appropriate.
- Support international and national initiatives to enhance climate disclosures, including adopting ISSB standards.
- Be active in promoting consistent and high-quality accounting of climate risks.
- Continue to supervise firms’ progress in embedding the supervisory expectations in the areas set out in SS3/19, as well as if further guidance or updates to these expectations are needed over time.
- Build an understanding of banks’ evolving approach to Pillar 2A capital add-ons.
- Engage in discussions at international level on how the regulatory frameworks will need to be adjusted for potential climate risks.
The BoE has said that it will continue to welcome input from researchers and academics moving forward, particularly on the impact of climate change for the banking macroprudential framework and the insurance framework.
Find more details here.
