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Bank of England Postpones Climate Stress Tests to Focus on Virus

May 7, 2020, 11:49 AM

The Bank of England will postpone its climate stress tests, a pioneering undertaking designed to offer one of the most comprehensive insights on the effect of global warming on banks and insurers.

The central bank’s Prudential Regulation Authority unit said Thursday it will delay the launch of its climate biennial exploratory scenario, which will test the resiliency of the largest financial firms’ business models to the physical and transition risks from climate change, until at least mid-2021. The launch was originally planned for the second half of this year. The PRA also said it won’t publish information about its 2019 stress tests of insurers, which for the first time calculated climate risks.

The PRA said the decisions were made to help the companies “play their part in supporting the U.K. economy to respond to the significant impact of Covid-19.” The central bank said addressing climate change remains a strategic priority because it “represents a material financial risk to firms and the financial system.”

Central banks have been increasingly involved in the debate over climate change and the financial system, and the Bank of England has been a leader in encouraging banks and insurers to assess their exposures to global warming and the risks associated with any transition to a lower-carbon economy.

A short postponement of the BoE’s stress tests is understandable, but the climate emergency will very quickly return to the top of the agenda and institutions still need to understand their risk exposure, said Vanessa Havard-Williams, global head of environment at Linklaters LLP.

Still, there’s a chance that even a short postponement might detract from the PRA’s goals, said Lorraine Johnston, regulatory counsel at law firm Ashurst.

“This is an eminently practical proposal from the BoE, reflective of the actions of other regulators in the U.K. as a result of COVID-19,” Johnston said. “Such action does, however, arguably detract from the importance of climate risk to banks and their clients.”

To contact Bloomberg News staff for this story:
Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story:
Tim Quinson at tquinson@bloomberg.net

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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