Banks and insurers in the UK will end up taking on climate-related losses worth almost £ 340 billion by 2050, unless steps are taken to curb rising temperatures and sea levels, he warned. the Bank of England.
The figures came from the Bank’s first climate stress tests on seven of the UK’s largest lenders. These were three 30-year climate scenarios that covered physical and transitional risks, including one in which governments did not take additional steps to curb greenhouse gas emissions, leading to an average increase in greenhouse gas emissions. temperature of 3.3ºC and a rise of 3.9 meters sea levels.
The regulator found that without early action, companies would suffer an increase in loan and mortgage defaults, investment losses and climate-related lawsuits, especially for insurers, worth £ 334 billion to 19 banks and largest insurers in the UK in 2050.
“Climate change will inevitably lead to losses for banks and insurers, even in a scenario where governments around the world are taking swift and swift action to bring us to zero,” said Sam Woods, deputy governor of Prudential Regulation and executive director of Prudential Regulation. Authority, he 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 take action, only banks would suffer collective losses in value. of 110 billion pounds.
That’s about 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, Santander’s UK branch and Nationwide Building Society.
“The first key lesson of this exercise is that over time, climate risks will become a persistent friction for the profitability of banks and insurers, especially if they are not managed effectively,” Woods added. “While they vary across companies and scenarios, overall loss rates equate to an average friction of annual profits of 10-15%.”
Sign up for the Daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Although the regulator has been praised by climate stress tests, the Bank of England has been criticized for refusing so far to publish data for individual companies and not to introduce immediate capital requirements, which make it more expensive to offer loans and services to fossil fuel companies and carbon intensive projects.
Threadneedle Street, however, has not ruled out publishing individual results in the future or considering how they may affect capital requirements. The Bank plans to use the initial reports to report on how each company is supervised.
The Bank of England is one of the few central banks that has conducted climate stress tests, along with the European Central Bank and the Banque de France.