It was a pleasure yesterday to host a keynote speech by Sarah Breeden, Executive Director, Bank of England (Bank), on the UK Finance webinar channel as part of London Climate Action Week.

Sarah is co-chair of the Climate Financial Risk Forum (CFRF) and a UK representative for the Network for the Greening of the Financial System (NGFS) and consequently is very well placed in her horizon scanning.

Sarah outlined that climate change creates financial risks and these arise from both physical and transition risks, manifesting within credit, market and operational risks, but with distinct characteristics, not least the fact that the risks are simultaneously uncertain yet totally foreseeable. The nature of these risks will be determined by actions taken over the next decade, with the next three to five years being critical. The scale of the challenge means we cannot simply divest our way to net-zero.

She divided the Bank's ask of financial firms into three:

• Micro-level disclosure, based upon the right information, enabling firms to make financial decisions that take the risks and opportunities from climate change into account
• Supervisory expectations of firms? approach to managing financial risks from climate change, the Bank having published its supervisory statement in April 2019
• Macro-level stress testing and scenario analysis permitting more of a top-down approach in keeping with the safeguarding of financial stability.

The speech was peppered throughout with references to current initiatives (and announcements), not least:

• ongoing support for the disclosure framework provided by the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) and discussions taking place with other regulators within a government-led taskforce on climate disclosures on a possible pathway to making these mandatory
• the Bank having published its very own first TCFD-aligned climate disclosure report the week before last
• further guidance to the industry published in the form of a ?Dear CEO? letter on managing climate-related financial risk, in which the Bank sets out unequivocally that it expects firms to have acted fully on supervisory expectations by end-2021
• the week opening with CFRF publishing practitioner guidance, emphasising that while the forum is co-chaired by the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA), the guide has been prepared by the industry for the industry and is designed to be practical and relevant to all firms
• central banks and supervisors working together within the NGFS last week publishing reference scenarios to be built upon in planning for climate stress testing scheduled for the middle of 2021.

Governments around the world are now assessing green recovery packages to rebuild economies hit by Covid-19 and the momentum towards ?building back better? provides an opportunity for innovation in support of the transition. If we are currently in the second phase of climate action - turning aspiration into action - then the third phase of using the tools under development to make financial and business decisions that progress us on the orderly transition to net-zero is rapidly approaching.

We opened the Q&A discussion with an exchange on our personal ?lightbulb? moments on the urgency with which we needed to address climate change. These included Mark Carney's ?Tragedy of the Horizon? speech, delivered at Lloyds of London almost five years ago, and evidence provided by climate scientists, not least Dr Emily Shuckburgh, ex-British Antarctic Survey and currently of Cambridge Zero. Emily spoke both persuasively and succinctly at a UK Finance conference in November 2019 - watch in 60 seconds here - on why net-zero by 2050 works, but only if we take decisive action now.

Webinar Series: Climate Action, Green Finance & Sustainability

Sustainability has been a prime objective for UK Finance since it's formation three years ago.  We will be running three more webinars focused upon the opportunities that the greening of our economy present:

8 September,12pm | ?Banking on a Just Transition
?22 September, 12pm | Strategic Planning - Building in Sustainability Risk and Solutions Monitoring
20 October, 12pm | ?Green Finance - Practical Steps to Unlocking the Opportunity
 
LEARN MORE HERE