Results of the 2021 Climate Biennial Exploratory Scenario (CBES)

In May 2022 the Bank of England published the Results of the 2021 Climate Biennial Exploratory Scenario (CBES) which aimed “.. to explore the financial risks posed by climate change for the largest UK banks and insurers ..”.

The CBES asked participants to look at the financial risks from the physical effects of climate change and the transition to a net-zero economy. This was done by considering three scenarios. These covered two possible routes to a net-zero greenhouse gas emissions by 2050, Early Action (EA) and Late Action (LA) whilst the third No Additional Action (NAA) explored the physical risks from governments failing to enact policy responses to global warming. These scenarios are not forecasts but “..plausible representations of what might happen …”.

Noting that participants faced a lack of data on many of the key factors affecting their ability to manage and understand the effects of climate change, and that a number of different approaches were used to assess and model the risk, key findings were:

• Climate risks are likely to be a drag on profitability but there is substantial uncertainty about the size of the risks;

• Banks have plans for addressing climate risks, such as reducing lending to borrowers whose physical assets are at threat, the collective impact of which could have a negative impact on the economy;

• The transition to net zero is likely to materially impact a number of sectors participants are exposed to.

Following this exercise the Bank will be working with participants to help them refine their approaches to measuring and managing the risks arising from climate change for example by sharing best practices and working on data issues.

See section 27.7.2 for more details on the Bank of England’s annual cyclical scenarios and section 27.7.2.5 on biennial exploratory scenarios.

See also the Principles for the effective management and supervision of climate-related financial risks issued by the BCBS in June 2022.