About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Bank of England Climate Tests Criticised, but Could Show Route to Net-Zero

Subscribe to our newsletter

The Bank of England’s examination of the lending sector’s vulnerabilities to climate-related shocks has come under fire even as gaps exposed in the exercise have helped show how the industry can decarbonise.

The London-based central bank has been accused of giving banks and insurers an easy pass on proofing their lending activities against climate risks. A report in the UK’s Guardian newspaper said politicians and campaigners were angry that climate stress tests set by the Bank had come with no penalties for lenders who still support carbon-intensive activities.

Nevertheless, it is understood that the pilot tests – which were set in the summer and whose results were handed to policy makers last month – have highlighted where lenders’ weaknesses are and how they can address them.

The latest controversy follows a report by *ESG Insight* (read more here) in September that the 17 stress-test participants, which include Barclays Bank and insurer Aviva, had found the exercise difficult. They couldn’t find the right data to satisfy regulators and were also said to be concerned at discrepancies found in their results.

Action Policy

The pilot tests are part of the the central bank’s attempt to introduce an ESG reporting framework for benchmarking financial institutions’ progress towards their sustainability targets. The Climate Biennial Exploratory Scenario (CBES) seeks to examine financial institutions’ vulnerabilities should their climate action policies be enacted in a short timeframe, in a medium timeframe before 2050 or if no action was taken at all.

The tests were conducted by: Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK, Standard Chartered and Nationwide Building Society. Life insurers Aviva, M&G, Legal & General, Phoenix and Scottish Widows were also included, as were general insurers RSA and Direct Line, and the UK units of AXA, Allianz and AIG.

While the Bank gave no comment on the report, it is reviewing the test results and assessing the design of the exercise, which is likely to be held again in the new year. The tests and the methodologies behind them are also expected to be discussed at a conference on climate change and capital requirements next year.

The CBES exercise has highlighted data and methodological gaps in banks’ and insurers’ reporting capabilities. While it’s not thought these can be addressed immediately, officials are said to at least have more clarity on what needs to be done to fill them and carry the industry forward.

Bank Initiatives

The Bank has sought to clean up the industry through various channels.

Its Prudential Regulation Authority (PRA) already requires that banks hold enough capital buffers to withstand climate shocks. The PRA has a set a deadline of the end of this year for lenders to have in place procedures to demonstrate they are adequately covered.

In its Climate Change Adaptation Report released last month the PRA said it is examining whether changes to the tests’ design are needed. An update is expected next year.

A separate Bank of England-led report by the Network for Greening the Financial System (NGFS) highlighted challenges existed in obtaining the correct data for similar stress tests around the world and that more work was to being carried out on the issue.

The Guardian report also quoted Caroline Lucas, a Green Party MP in the UK parliament, criticising the Bank for failing to disclose the results of the tests.

“It needs to rectify these failures if it is to have any credibility during climate finance negotiations,” Lucas was quoted as saying, referring to the COP26 UN climate summit being held in Glasgow this week.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Streamlining trading and investment processes with data standards and identifiers

Financial institutions are integrating not only greater volumes of data for use across their organisation but also more varieties of data. As well, that data is being applied to more use cases than ever before, especially regulatory compliance and ESG integration. Due to this increased complexity of institutions’ data needs, however, information often arrives into...

BLOG

A-Team Group Announces Winners of its Prestigious Innovation Awards 2025

The most innovative data and technology solutions for capital markets were recognised today as A-Team Group announced the winners of this year’s A-Team Group Innovation Awards 2025. Now in its fifth year, the prestigious awards recognise the innovative projects created across the vendor and practitioner communities that provide high-value solutions to organisations within capital markets...

EVENT

Data Management Summit London

Now in its 16th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore how data strategy is evolving to drive business outcomes and speed to market in changing times.

GUIDE

Valuations – Toward On-Demand Evaluated Pricing

Risk and regulatory imperatives are demanding access to the latest portfolio information, placing new pressures on the pricing and valuation function. And the front office increasingly wants up-to-date valuations of hard-to-price securities. These developments are driving a push toward on-demand evaluated pricing capabilities, with pricing teams seeking to provide access to valuations at higher frequency...