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

we call the system wide exploratory scenario, which seeks to synthesise the effects of some severe but plausible shocks passing through the financial system. over 50 firms have participated, as have the clearing houses that support the activity. this is not a stress test in the now quite traditional individual bank by bank sense. it is a market - wide test designed to simulate shocks – it's a flow test, designed to find obstructions and concentrations of risks and correlated positions that might otherwise be opaque. it is i think an important step forward in testing behavioural reactions to stress including how risks might cascade across markets. and, it will give us a better answer in terms of the effectiveness of ccps in managing market - wide risks. the results should be published by the end of the year. it's the sort of new thing that i think mike would have appreciated, and been enthusiastic about. the bank of england and the cftc have a longstanding relationship of cooperation on ccps. mike added his special qualities to that relationship. its our duty to carry his work forward, but even more so to do it in his spirit, the one we enjoyed and miss so much. thank you. i would like to thank sarah breeden, karen jude, harsh mehta, ruth smith, sam woods, shane scott, sasha mills, deborah potts, thomas ferry, konstantina drakouli, 4 / 5 bis - central bankers'speeches marc ledroux, barry king and priya mistry for their help in the preparation of these remarks. 5 / 5 bis - central bankers'speeches