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Banks, insurers must have "credible plans" for climate change: Bank of England

A man walks through Greenwich Park as a haze of pollution sits over the London skyline April 3, 2014.  REUTERS/Luke MacGregor
A man walks through Greenwich Park as a haze of pollution sits over the London skyline April 3, 2014. REUTERS/Luke MacGregor

Thomson Reuters

LONDON (Reuters) - Britain's banks and insurers must come up with credible plans for protecting themselves against risks from climate change and may need to hold more capital, the Bank of England said on Monday.

"Financial risks from climate change will be minimized if there is an orderly market transition to a low-carbon world, but the window for an orderly transition is finite and closing," the central bank said in a policy proposal document.

Governor Mark Carney, who has put climate change issues on the BoE’s regulatory radar, said last month that lenders had failed to grasp the scale of the challenge.

The BoE's Prudential Regulation Authority said it "expects firms to understand the financial risks from climate change and how they will affect their business model."

Insurers are facing heavier payouts for increased flooding caused by climate change and tougher energy efficiency standards for homes and commercial property could affect repayments on mortgages and thereby hit banks, it said.

If the risks are material, the PRA said firms should show how they will mitigate them "and to have a credible plan or policies in place for managing exposures."

In Monday's statement setting out its guidance for the consultation, the BoE explained how it expected banks, insurers and building societies to "identify, measure, monitor, manage and report on their exposure" to climate change risks.

It called on firms to help it work out what good measurement and public disclosure of risks would look like.

Some banks have agreed to disclose information regarding climate change already, something which has the potential to become mandatory in the future.

The BoE expects to issue further guidance on best practice 12-18 months after the supervisory statement has been finalized.

(Reporting by Huw Jones; Editing by William Schomberg)

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