Expanding Disclosure of Climate Risks in Bank of England's Lending Activities
The Bank of England (BoE) has published its annual climate-related financial disclosure, revealing its management of climate change risks. According to the disclosure, the BoE's strategy continues to focus on three key areas from last year, following the removal of a previous reference to supporting an orderly transition to net zero.
Sarah John, the BoE's chief operating officer, emphasised that the disclosure represents the bank's commitment to transparency, accountability, and collaboration. The report also indicates that the value of the BoE's holdings of sovereign bonds could fall by over 9% in the most adverse climate scenario.
The BoE's disclosure includes information on how it is managing the risks from climate change in its lending operations, as per the remit set by the chancellor in the annual letters. The bank has expanded its disclosure to include the indexed long-term and short-term repo lending facilities.
The Labour government has reinstated climate change as an important objective of central bank policy. Chancellor Rachel Reeves, in her annual remit letter to the BoE's financial policy committee, highlighted the climate and nature crisis as the greatest long-term global challenge and the risks it poses as relevant to the BoE's primary objective of maintaining financial stability.
However, Reeves has also stated that she would prioritize growth over reaching net zero if forced to choose. This sentiment seems to be reflected in the BoE's disclosure, which does not appear to have updated its climate strategy significantly since reducing its ambition last year, despite a clear signal from the new government to re-prioritize climate and the increasing evidence of climate change and nature loss driving inflation.
The BoE has enhanced its methodologies to measure climate financial risks in sovereign bonds and developed a toolkit to assess credit risks to financial institution counterparties. The bank has also created a new toolkit to assess risks to counterparties in its lending operations, suggesting transition risks could impact the Common Equity Tier 1 ratio of these counterparties.
Ellie McLaughlin, senior policy and advocacy manager at thinktank Positive Money, has called for the BoE to assess and disclose the environmental impacts of the collateral it lends against, not just the banks it lends to. This suggestion aims to ensure a comprehensive approach to managing climate risks in the bank's operations.
The current Governor of the Bank of England is Andrew Bailey. Under his leadership, the BoE has been reported to have shifted its attention away from climate and nature risk. However, the bank's commitment to transparency and its disclosure of climate-related risks in its operations remain a significant step towards fostering a resilient financial system and supporting sustained economic growth.
This page was last updated on June 30, 2025. The BoE's disclosure in its previous year highlighted steps it was taking to mitigate climate-related financial risks to residential mortgage collateral, which it said represents the majority of its collateral. The bank has not yet updated this aspect of its strategy in its latest disclosure.
The BoE, under its new leadership, continues to navigate the complex challenges of climate change and its impact on the financial sector. As the world grapples with the reality of climate change and its effects, the bank's commitment to transparency and its efforts to manage climate risks in its operations will be closely watched.
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