UK banks and insurers will end up bearing almost £340bn in climate-related losses by 2050 unless action is taken to curb rising temperatures and sea levels, the Commission has warned. Bank of England.
The figures come from the Bank’s first climate stress tests on seven of the UK’s biggest lenders. These involved three climate scenarios over a 30-year period, covering physical and transitional risks, including one in which governments take no further action to reduce greenhouse gas emissions, resulting in an increase average temperature of 3.3°C and a rise of 3.9 meters in sea levels.
The regulator found that without early action, businesses would suffer an increase in loan and mortgage defaults, investment losses and climate-related lawsuits – especially for insurers – worth $334. billion in the UK’s 19 largest banks and insurers by 2050.
“Climate change will inevitably lead to losses for banks and insurers – even in a scenario where governments around the world take swift and early action to get us to net zero,” Sam Woods, Deputy Governor for Prudential Regulation and chief executive of the Prudential Regulatory Authority, said.
While banks are likely to survive the Bank of England’s worst-case climate scenario, delayed transition efforts – in which governments and industry wait until 2031 to act – banks alone would suffer another 110 billion pounds of collective losses.
This is around double the pre-Covid loss rate recorded by the seven lenders tested in the Bank of England’s climate stress tests: NatWest, Barclays, HSBC, Lloyds, Standard Chartered, the UK branch of Santander and Nationwide. building society.
“The first key lesson from this exercise is that over time, climate risks will become a persistent drag on the profitability of banks and insurers, particularly if they do not manage them effectively,” Woods added. “While they vary by company and scenario, the overall loss rates equate to an average annual earnings slowdown of around 10-15%.”
While the regulator has been praised for the climate stress tests, the Bank of England has been criticized for having so far refused to release data for individual companies and refrained from introducing immediate capital requirements , which would make it more expensive to offer loans and services to fossil fuel companies and carbon-intensive projects.
Threadneedle Street has not ruled out publishing individual results in the future, however, nor considering their impact on capital requirements. The Bank plans to use the initial reports to inform how it supervises each company.
The Bank of England is one of the few central banks to have conducted climate stress tests, alongside the European Central Bank and the Banque de France.