The TCFD 2018 Status Report found that non-financial industries (energy, transport, building and agriculture) were the most advanced at measuring strategic resilience, including some examples of scenario analysis.13,14 The TCFD review found that the financial sector is also moving toward enhanced strategic analysis. For example half of all insurance companies reviewed used the 2°C scenario, and the majority of banks described the potential impact of climate-related issues on their businesses. 10  Prudential Regulation Authority. (Oct 2018). Consultation Paper on Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change. Available: https://www.bankofengland.co.uk/prudential-regulation/publication/2018/enhancingbanks-and-insurers-approaches-to-managing-the-financial-risks-from-climate-change. 11 Prudential Regulation Authority. (March 2019). PRA and FCA’s joint Climate Financial Risk Forum. Available: https://www.bankofengland.co.uk/news/2019/march/first-meeting-of-the-pra-and-fca-joint-climate-financial-risk-forum. 12 Forthcoming April 2019 13 As described in TCFD September 2018 report: These companies disclose the inputs to and outputs of their scenario analyses including strategic responses to the low-carbon transition, such as changes in portfolio mix or investment 14 Encouragingly, all members of the oil and gas preparer forum used the 2-degree energy transition scenario to inform strategic decisions. The materials and building sector also had the highest percentage of companies disclosing information about strategic resilience and most provided some information on the climate-related scenarios they used to make these assessments. 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  However, the September TCFD report showed that while firms were starting to consider strategic resilience, few systematically conducted scenario analysis.

Insurers have responded by developing their modelling and forecasting capabilities, improving exposure management, and adapting coverage and pricing.8 In the process, insurers have learned that yesterday’s tail risk is closer to today’s central scenario. Sadly with climate, history repeats not as a farce but as tragedy and with growing frequency. For banks, the financial risks from climate change have tended to be beyond their planning horizons. The PRA’s survey of 90% of the UK banking sector, representing over $ of assets, found that these horizons averaged four years – in other words, before risks would be expected to be fully realised and prior to ambitious climate policies taking effect. 9 That notwithstanding, the PRA’s latest survey finds that almost three quarters of banks are starting to treat the risks from climate change like other financial risks – rather than viewing them simply as a corporate social responsibility issue. Banks have begun considering the most immediate physical risks to their business models – from the exposure of mortgage books to flood risk, to the impact of extreme weather events on sovereign risk. And they have started to assess exposures to transition risks in anticipation of climate action. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. 8 Prudential Regulation Authority. (Sept 2015). The impact of climate change on the UK insurance sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurancesector.pdf 9 Prudential Regulation Authority. (Sept 2018). Transition in thinking: The impact of climate change on the UK banking sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-impact-of-climate-change-onthe-uk-banking-sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EEC.