The Bank of England is inviting banks and insurers to assess their exposures to global warming and the risks associated with any transition to a lower-carbon economy.
The central bank published a discussion paper on its planned 2021 stress tests on climate change Wednesday. It’s not a pass-or-fail capital test for companies, and only aggregate results will be published rather than those for individual firms.
The discussion paper said the bank will examine three possible scenarios: an abrupt transition to lower emissions, a smooth transition and a world with no transition whatsoever where physical risks are higher. The message is to move in an early and orderly way, rather than a late and disruptive one with more economic damage.
Central banks have been increasingly involved in the debate over climate and the financial system, particularly through their membership of the Network for Greening the Financial System.
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