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.

Such claims could arise well into the future, as the science and evidence of climate change hardens, though some are already taking action against companies on the grounds of failure to disclose the risks posed to their business models by climate change. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4    Dependency on short-term actions given that the size of future impacts will, at least in part, be determined by the actions taken today; and    Uncertain time horizon which may stretch beyond traditional business planning cycles. The nature of these risks means that the biggest challenge in climate risk management is in assessing the resilience of firms’ strategies to transition risks. Part of the genius of the private sector-led TCFD is its recognition that disclosure needs to go beyond the static to the strategic. Markets need information to assess which companies can seize the opportunities in a low carbon economy and which are strategically resilient to the physical and transition risks associated with climate change. The Bank of England has also become increasingly active in such assessments, consistent with our financial stability and prudential mandates. As the supervisor of the world’s fourth largest insurance industry, we know that general insurers and reinsurers are on the front line of managing the physical risks from climate change.