Bank of England launches second round of climate change stress test exercise

As promised, the Bank of England (Bank) has today launched the second round of the Biennial Exploratory Scenario (BES) exercise on financial risks from climate change. The exercise aims to explore what financial risks are posed by climate change for a number of participants who are some of the UK’s largest banks and insurers.

The BES exercise comprised of three main objectives:

• Size the financial exposures of participants and the financial system more broadly to climate-related risks.
• Understand the challenges to participants’ business models from these risks; and gauge their likely responses and the implications for the provision of financial services.
• Assist participants in enhancing their management of climate-related financial risks. This includes engaging counterparties to understand their vulnerability to climate change.

The second round will focus on the second objective, in particular participants’ proposed management actions in response to climate scenarios. The participants will have to answer a number of questions related to three separate scenarios, stating the associated implications for their business models respectively.

The deadline for second round submissions is 31 March 2022 with results expected to be published by the Bank in May 2022.