- ranging macroeconomic and societal consequences, including through elevated energy prices – potentially akin to those whose negative effects we are experiencing today. another key point for me is that no action on climate delivers the worst outcome from our scenarios. a naive comparison of loss rates in the two net - zero scenarios and the naa scenario might suggest otherwise ; in fact for banks, credit losses were lower under no action than for late action. but this is misleading because of the very different end - points of the scenarios. under both the la and ea scenarios, climate change has broadly been brought under control by the end of the 30 year period. by contrast, with no additional action the impacts will persist well beyond the 30 years of our scenario – incurring substantial economic costs not captured in these estimates. even sticking within the 30 year bounds of the scenario – and focusing on financial sector impacts – the naa scenario is pretty grim. projected impairment rates for banks are up 50 % compared with normal levels. and whereas the ‘ transition ’ scenarios offer clear opportunities for banks to increase their profits by investing the transition, the ‘ no action ’ scenario offered no such opportunities. instead the world gets poorer and more uncertain for all sectors, particularly those directly exposed to physical risks. the ‘ no action ’ scenario is particularly unpleasant for life and general insurers – even sticking to the 30 year window, their losses in this scenario were worse than in the transition. for instance uk and international general insurers, respectively, projected a rise in average annualised losses of around 50 % and 70 % by the end of the naa scenario. it ’ s worth emphasising that these costs would be mostly passed on to consumers through higher premiums. ultimately, in a ‘ no action ’ scenario, we would see a reduction in access to lending and insurance for so - called ‘ climate vulnerable ’ sectors and households. to give an example of what this means, homes at risk of flooding would likely become prohibitively expensive to insure or borrow against. like so many of the impacts of climate change, this cost would be borne unequally : 45 % of the mortgage impairments in the scenario are accounted for by just 10 % of the country. [ 12 ] and there is evidence that in areas particularly at risk of flooding, many homes could become uninsurable. finally, the cbes exercise is a measure of the progress banks and insurers are making in their climate risk management. overall, this is a good news story

climate capital − speech by sam woods given at a webcast hosted by the global association of risk professionals published on 24 may 2022 we recently tested the uk ’ s largest banks and insurers on how prepared they are for financial risks caused by climate change. sam woods talks about the results. speech climate change is now firmly in the focus of prudential regulators across the globe. in that context, i want to use this speech to outline the results of our first exploratory scenario exercise on climate risk – the ‘ cbes ’ [ 1 ] – which were published earlier today. but before that, i want to put those results in context, and set out how i see climate risk fitting within the prudential regulation authority ’ s ( pra ’ s ) wider mission. the role of prudential policy tackling the threat from climate change will involve efforts by governments across the globe, as well as by many other organisations and individuals. in the uk, the effort to get to net zero greenhouse gas emissions is being led by government, with a wide range of other public bodies doing their part. where does prudential policy fit into this effort? the role of prudential policy is to ensure the safety and soundness of banks and insurers, so that they can continue to provide vital financial services to the real economy. getting our core job right, and so maintaining financial stability, is far and away the most important thing we can do to support the fight against climate change. achieving net zero will not be possible unless our societies make considerable investments in developing and disseminating new technologies, and will require major changes across the economy. a stable financial system can support households and businesses through these changes, and channel investment where it needs to go to support the transition. transitioning to net zero will be a major challenge for our institutions and societies even in a benign economic environment – doing so without confidence in the basic functioning of the financial system would be near impossible. it is therefore vital that firms can withstand risks to their safety and soundness, including those that arise as a consequence of climate change – both ‘ physical ’ risks like flooding and extreme weather events, and ‘ transition ’ risks that arise as the economy moves away from carbon - intensive activities. firms therefore need to understand, at a granular level, how their balance sheets and business models are exposed to both present and future climate risks, so that they can take the right risk management actions today. this includes investing