The IIF is pleased to submit our comment letter on the Bank of England Discussion Paper on ‘The 2021 biennial exploratory scenario (BES) on the financial risks from climate change.’ We appreciate the opportunity to share our ideas and concerns on climate risk scenario analysis and to provide comments on this novel BoE exercise in particular— acknowledging the precedent that it will set for other jurisdictions.
The IIF agrees with the importance of the objective to comprehensively assess the UK financial system’s exposure to climate-related physical and transition risks. The IIF also welcomes the BES exercise as a much-needed vehicle to help identify and address data gaps. While strongly supporting the rationale for the exercise, many of our member firms have expressed concern about certain characteristics—particularly its ambitious scope given persistent data gaps. We therefore suggest ways that the exercise could be designed in a more proportionate way. We also encourage the BoE to not treat climate-related scenario analyses as stress tests for prudential purposes and—more generally—urge central banks and supervisors to align their approaches and avoid fragmentation.