Lessons from Network for Greening the Financial System (NGFS)

What do we know from work to date?

It has always been obvious that climate change has had an impact on the environment. But market participants have only recently begun to realise that climate change creates financial risks that impact individual firms. The financial system has also realised that it has a crucial role to play in addressing these risks. 

How is the Bank of England helping the financial sector manage financial risks from climate change?

In 2019 the Bank became the first supervisor in the world to set supervisory expectations for banks and insurers to manage the financial risks from climate change. These supervisory expectations ensure that firms take a strategic forward-looking approach to managing the risks.

They have also established the Climate Financial Risk Forum, which has the intention of building expertise and encouraging the sharing of best practices on what good climate risk management looks like. 

The Bank of England is also helping others with their work on financing green, by channelling investment to reduce carbon emissions and through innovation. 

What has the Bank of England learned from working with the NGFS?

The Bank of England, along with nearly 60 other central banks and supervisors under the macrofinancial workstream of the NGFS undertook a project to co-design climate scenarios. There were some key lessons learned in the process: 

• We often talk about how much we don’t know, but this doesn’t do justice to how much work has been done.
• The cost to the economy in aggregate of getting to net zero need not be substantial
• The impacts of physical risks will be significant