The Bank of England should seek to build its understanding of how nature risks might arise and their potential materiality for UK financial firms and the financial system, its Financial Policy Committee (FPC) has said.
With representatives including the bank’s governor, Andrew Bailey, the FPC identifies, monitors and takes action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.
The documents referenced a remit and recommendations letter send in March 2021 by former chancellor of the exchequer Rishi Sunak, in which HM Treasury asked the FPC to consider the potential relevance of other environmental risks – in addition to those posed by climate change – to its primary objective.
“The FPC discussed that there was growing global attention on the potential for broader nature loss and degradation to cause financial risks (for example, in the NGFS-INSPIRE March 2022 report), albeit the collective understanding of how nature-related risks could give rise to financial risks was in its infancy globally.”
When Responsible Investor reached out to the Bank of England for comment on the recommendation, a spokesperson said: “There is nothing else to add. The Record text speaks to itself and there is no further detail at this stage.”
On LinkedIn, Thomas Viegas, manager in the market intelligence delivery team and former manager of the bank’s Climate Hub, wrote: “Today is one step of likely many more to be taken. The issue of nature-related financial risk has risen materially across central banking and supervisor communities, and the outlook for further progress in this area is only bright. Therefore, today is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
The FPC’s next policy meeting will be in September and the record of that meeting will be published on 12 October.
In related news, the Norwegian government has initiated a Nature Risk Committee which will investigate how dependent society and the economy are on nature.
The committee’s remit is to contribute to clarifying the concept of natural risk, make it known and contribute to a uniform use in Norwegian companies. It has also been tasked with looking at Norwegian industries and sectors’ exposure to natural risk, and assessing how this risk can be analysed and presented at national level.
“An important task for the committee is also to study methods and tools that enable the business community, financial institutions and society in general to handle natural risk in the best possible way,” said minister of climate and environment Espen Barth Eide.
The committee is due to report by 31 December 2023.