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Bank of England’s Consultation Paper on Managing Climate Risks

On April 30, 2025, the Bank of England released a consultation paper, "Enhancing Banks’ and Insurers’ Approaches to Managing Climate-Related Risks", outlining updated supervisory expectations for financial institutions, specifically banks and insurers, to manage the growing risks associated with climate change.

Key insights from the paper:

Climate Change Risks: The consultation highlights how severe weather events and long-term effects, such as sea-level rise, will increasingly impact businesses, leading to direct financial losses and changes in business models. The transition to net-zero goals also introduces additional financial considerations.

Growing Climate-related Losses: While the timing and magnitude of financial losses from climate risks remain uncertain, they are expected to grow. Financial firms need to assess these risks to ensure resilience and capitalize on potential strategic opportunities.

Firms’ Progress and Gaps: Since 2019, firms have improved their climate risk capabilities, but progress has been uneven, with increased clarity now required to manage the complex risks.

Clear Expectations vs. Rules: The proposals emphasize clear expectations for risk management and governance outcomes rather than prescribing rigid rules, allowing firms to develop innovative solutions tailored to their business needs.

Proportionality: The guidance is proportionate, meaning firms with greater exposure to climate risks must implement more robust actions to mitigate these risks.

International Alignment: The proposals align with international standards, helping financial institutions better integrate climate risk management into their operations.

Flexibility for Innovation: The paper also acknowledges the need for firms to have flexibility in how they address these risks, allowing for creative solutions suited to their unique operational contexts.

In essence, the Bank of England aims to ensure that the financial sector is better prepared for climate-related risks while fostering innovation in risk management practices. The new guidance provides a foundation for banks and insurers to take proactive action in a rapidly evolving climate landscape.