Banks and insurers could lose £334bn unless climate change action is taken

Businesses warned to act on climate change or face 10-15% dip in profits

The Bank of England has warned that UK banks and insurers will suffer losses of £334 billion before 2050 unless action is taken to slow the effects of climate change.

The figure arose from a climate stress test the regulator carried out on seven big UK lenders, which looked at three possible scenarios over 30 years. One scenario considered what would happen if the government failed to cut greenhouse gas emissions and average temperatures increased by 3.3C.

The Bank discovered that businesses would experience a huge rise in investment losses and mortgage and loan defaults over the next 30 years. There will be financial losses caused by lawsuits involving climate change too, especially for insurers.

Banks won’t have it easy either. In the worst-case scenario, they would experience a collective loss of £110 billion.

“Climate change will inevitably drive losses for banks and insurers, even in a scenario where governments around the world take swift and early action to bring us to net zero,” Sam Woods, the Bank’s Deputy Governor for Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority, said.

“The first key lesson from this exercise is that, over time, climate risks will become a persistent drag on banks’ and insurers’ profitability, particularly if they don’t manage them effectively. While they vary across firms and scenarios, overall loss rates are equivalent to an average drag on annual profits of around 10-15%.”

The Bank of England is one of the few central banks to have conducted climate stress tests. The regulator has yet to publish data on individual businesses, but it has not ruled out doing so in the future.

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