BoE says more work needed to assess climate capital rules

The Bank of England concludes in a new report on climate change that more work is needed before it can decide on whether changes to the capital regime are necessary.

The study builds on previous work by the BoE into climate change, dividing the remaining challenges into “capability gaps” and “regime gaps”. Shortfalls in capability relate to firms’ and supervisors’ ability to model the impact of climate change and set resilience accordingly. Shortfalls in the regime refer to elements of the existing capital framework that may not be suited to tackling climate change.

“Further work is needed to assess whether there may be a regime gap in the macro-prudential framework,” the BoE says in the report. “Any use of macro-prudential tools would need to be assessed carefully against how well they mitigate climate risks, their behavioural impacts and the potential for unintended consequences.”

The central bank adds that research into the “conceptual challenges” of integrating climate risks into the capital framework “appears to be limited”. “Further research and greater public dialogue would therefore be valuable,” it says.

Campaigners expressed disappointment that the BoE was not taking concrete action. “It is concerning that the Bank of England is… delaying essential changes to capital frameworks to ensure they protect the public against climate risks,” said Simon Youel, head of policy and advocacy at Positive Money.

Lukasz Krebel, economist at the New Economic Foundation, said it was “worrying” the BoE had acknowledged the seriousness of climate change “but failed to act”.