By David Milliken
LONDON (Reuters) - The Bank of England was right to ignore climate change risks in its emergency response to the initial impact of COVID-19 on the economy, and instead seek to tackle them through longer-term regulatory changes, Governor Andrew Bailey said on Monday.
Environmental groups have criticised the BoE for including debt issued by energy companies and other businesses with significant greenhouse gas emissions in asset purchase programmes designed to support the economy.
"These short-term interventions did not discriminate on the basis of climate change. I believe that was the right response," Bailey told an environment conference in London.
"In the face of such an emergency in all conscience it was not right to say to people that they would be denied a livelihood because their employment was of the wrong sort for the climate," he added.
Bailey announced the BoE was setting a date of June 2021 for a climate 'stress test' for banks and insurers, akin to the regular stress tests introduced after the financial crisis designed to ensure lenders can withstand severe economic shocks.
The BoE would not impose new capital buffers on lenders as a direct result of the test - which has been delayed because of the pandemic - but would tell banks to think through their capital needs.
"Firms must assess how climate risks could impact their business and review whether additional capital needs to be held against this. Investments that look safe on a backward look may be existentially risky given climate risks," Bailey said.
The BoE was working with Britain's finance ministry on future requirements for climate risk disclosure within the financial sector, Bailey said.
"It is important that financial firms and their clients use the Taskforce for Climate-related Financial Disclosure (TCFD) framework and the latest tools available to measure, model and disclose the climate risks and opportunities they are exposed to today and in different future climate scenarios," he said.