Climate Risks 'Deprioritised' Under Bailey, Say Former BoE Staff

• Former bankers lashed out at the present Governor Bailey for watering down climate risks.
• The bank reportedly defended its stance and said climate risk is part of its financial decisions.
• If this is proven true, the UK’s financial system will be less prepared to face future climate-related adversities.

Former Bank of England (BoE) employees allege that climate- and nature-related risks have been downplayed under the current governor, Andrew Bailey, a claim the UK's central bank outright rejects.

The BoE said that it is still factoring in climate-related risks that pose a threat to the country's financial stability, but some ex-senior staff members who left the bank between 2020 and 2024 reportedly told the Financial Times that it is not doing much to prioritise these issues while Bailey is in the saddle.

They argue that the bank has not integrated environmental-related risks into its principal work, which affects the UK's financial sector's preparedness to deal with climate threats. They also claim that nature-related risks—including water shortages, crop failures, and species extinction—have not been taken seriously in boardrooms.

READ MORE: UK Banks Prioritise Fossil Fuels Over Green Pledges, Study Finds

Why did the employees resign? Some cited a lessened focus on climate risks as a reason for leaving and were increasingly frustrated by that, while others left for different career options.

The BoE defended its stand, and one of its representatives said, "While the government is responsible for climate policy, climate risk threatening our objectives is part of the bank's remits, and we work to take action accordingly."

It also made it clear that it very much backs the development of "transition finance," which aims to expedite the shift to a greener economy, pursuant to the UK government’s 2023 Green Finance Strategy.

During 2021–2022, it conducted a climate stress test to learn how climate risks impact the financial system and forecast a 10–15% reduction in profits for bankers and insurers. But this was the only test done so far, despite it being a biennial exercise.

In 2023, climate change was taken off the bank's list of official government reporting by the then Chancellor, Jeremy Hunt, which may have influenced its approach.

ALSO READ: UK Banks Linked to £75bn in Fossil Fuel Projects Abroad

For the present, top officials of the BoE have called for a cautious approach. Deputy Governor Sarah Breeden said the bank should focus on its main job of financial stability and leave political decisions on net zero to elected politicians.

"The pathway to net zero is one for elected politicians to choose," she told FT. "What we need to do is to make sure that banks, insurers, the financial system, are ready to manage the risks, whatever that pathway is."

In the meantime, Bailey himself told MPs in February 2024: "There is a financial stability risk [from climate change]. We haven't ignored that. But the depth and breadth of the work we do will be trimmed back somewhat."

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Source: BusinessGreen