Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps he is taking ahead of COP26 to ensure that the Bank of England has the ability to use macroprudential policy to align UK bank lending with the Government's climate objectives.

The Financial Policy Committee (FPC) of the Bank of England acts as the UK’s macroprudential authority. It identifies, monitors and acts to remove or reduce systemic risks to the UK financial system.

In March 2020, as part of the Remit and Recommendations letter for the FPC, the Chancellor recommended that the Committee should regard the risks from climate change as relevant to both its primary objective (to maintain and enhance financial stability) and secondary objective (to support the Government’s economic policy).

Significant work is already being undertaken in this space. In November 2020, the Bank announced it would be restarting the Climate Biennial Exploratory Scenario (CBES). The Bank will use the CBES to explore the financial risks posed by climate change. The exercise will test the resilience of the current business models of the largest banks, insurers and the financial system to climate related risks and therefore the scale of adjustment that will need to be undertaken in coming decades for the system to remain resilient.

The CBES will also help develop banks and insurers’ climate risk management capabilities. In addition, the Prudential Regulation Authority and Financial Conduct Authority jointly convene The Climate Financial Risk Forum (CFRF), an industry forum for building capacity and sharing best practice.