Banks will not be forced to reveal climate change risks they face

The Bank of England has stopped short of forcing financial companies to disclose the potential risks they face from climate change, despite growing calls from campaigners for such action.

In a warning to finance firms to vastly improve their planning to safeguard against the financial risks posed by global warming, Threadneedle Street asked companies to “consider the relevance” of disclosing their climate-related risks.

The central bank’s prudential regulation authority (PRA), which is tasked with ensuring UK financial sector stability, launched the guidelines for consultation on Monday, in a package of measures designed to coax banks to prepare for the low-carbon economy of the future.

The Bank has previously said that only 10% of banks take a long-term view of the risks posed by climate change, while Mark Carney, its governor, has said that failure to adapt would have a “catastrophic impact” on the financial system.

The guidelines also come after the UN Intergovernmental Panel on Climate Change warned that failure to limit global warming to within a maximum of 1.5C over the next dozen years would significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.

Although opting against mandatory disclosures, the Bank said firms ought to identify a senior manager with responsibility for managing the financial risks posed by climate change, with clear “board-level engagement”.

Banks and insurers must also use their existing risk management tools to assess the threat of global warming and should run scenario planning exercises to determine the impact of the climate change financial risks on their overall business strategy.

“The PRA will embed these expectations into its existing supervisory framework and expects firms’ responses to be proportionate to the nature, scale and complexity of their respective businesses,” it said.

Rob Macquarie, an economist specialising in green central banking at the campaign group Positive Money, said the guidelines were a step in the right direction, although he warned they “don’t really measure up to the scale of the challenge”.

“The regulator should be going further in laying the ground for mandatory disclosure of climate-related risk,” he said.

Other organisations have called for greater action. The Task Force on Climate-Related Financial Disclosures, an industry body led by Michael Bloomberg, the former mayor of New York, has called for firms to publish such risks in their annual public accounts.

The House of Commons environmental audit committee told the government earlier this year that reporting climate risks should be made mandatory by 2022, saying that a voluntary approach was unlikely to work over the medium term.

Frank van Lerven, of the New Economics Foundation, said: “We need to do much more than simply tinker around the edges with incremental adjustments to finance.

“We will need radical disruptive reforms that help reshape finance, so that it can actively help deliver a rapid, sustainable and fair green transition.”