On 18 May 2021, the Bank of England (BoE) published a speech by Sarah Breeden (BoE Executive Director, UK Deposit Takers Supervision) entitled Climate change – Plotting our course to net zero.
In her speech Sarah Breeden (SB) talks about how financial services firms in the UK can act as stewards in the move to a ‘net zero’ economy. She also shares her experiences of designing climate scenarios.
Among other things SB argues that it is critical that financial firms recognise now that the race to net zero has started. In support of their ambitions, and consistent with BoE expectations, financial firms need to run climate scenarios as part of their business as usual risk management and embed climate risk management within day-to-day decision-making. SB also notes that further help is needed from academia, think tanks and consultancies to fill in the blanks, turning high-level into ground level decision-useful material. More research is needed in particular in the following areas:
- What are the implications of government policy design on the transition, particularly on jobs, productivity, prices and different sectors of the economy?
- What will the impact of physical risks be on assets and on the economy – taking into account different possible transmission channels and non-linearities?
- What will the impact be on the financial sector, and constructively, how can the financial system play a role in climate mitigation and adaptation?