This report examines the financial risks from climate change that impact UK banks, building societies and Bank of England Prudential Regulation Authority-designated investment firms. It assesses how banks are responding to these, and clarifies the PRA’s supervisory approach.
Financial risks from climate change arise from two primary channels or ‘risk factors’: physical and transition. Physical risks can arise from climate and weather-related events, such as heatwaves, droughts, floods, storms and sea level rise. They can potentially result in large financial losses, impairing asset values and the creditworthiness of borrowers.