Four working groups have been set up to deal with the risks climate change poses to the UK’s financial system, the Bank of England and the Financial Conduct Authority (FCA) said.
The groups will focus on risk management, scenario analysis, disclosure and innovation, the groups said. The decision was made at the first meeting of the Climate Financial Risk Forum (CFRF) on Friday, but was announced today.
The forum saw major players from across Britain’s financial sector such as HSBC, JP Morgan, Blackrock and the London Stock Exchange Group convene to discuss how to “practical tools and approaches to address climate-related financial risks”, according to the Bank of England’s Prudential Regulation Authority (PRA) and FCA.
Climate change poses a “major threat to the future stability of the financial system”, the PRA and FCA said, for example through extreme weather events and government climate policies. The Bank of England has previously highlighted how financial losses due to extreme climate could hurt the City due to the interconnected nature of modern finance.
Each working group will be chaired by a forum member and will meet more often than the CFRF, reporting on their progress at each CFRF meeting. They have been tasked with producing practical guidance on their respective areas, which will then be shared with the industry more widely.
Chief executive of the PRA Sam Woods said: “The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy.”
FCA chief Andrew Bailey called the first forum meeting “an important step in tackling a major threat to the future stability of the financial system.”
“The FCA and PRA have been working closely together, combining and building on our joint knowledge, to develop an approach which will enhance the UK financial system’s resilience to climate change.”, he added.