tackling climate for real : progress and next steps speech given by andrew bailey governor of the bank of england bis - bdf - imf - ngfs green swan 2021 global conference 3 june 2021 i am grateful to thomas viegas, chris faint, zane jamal, theresa lober, timothy rawlings, matthew trott, michelle van der merwe, and karen jude for their assistance in helping me prepare these remarks. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice it is a pleasure to be participating today, at such a unique event. over recent decades, our global economic system has faced multiple shocks or swan events, ranging from the covid - 19 pandemic to the global financial crisis of 2007 / 08. but if we turn our eye to the future, we can see another swan lurking in the reeds, and it ’ s green. that green swan is why we are here today, the threat posed to our economies and our financial system by climate change. central banks, regulators and policymakers came together in the aftermath of the financial crisis to reform the system so that it could better weather future shocks. like before, we must come together again to address the threat of climate change. but unlike before, we cannot wait until the aftermath to do so. on tuesday i spoke about the role central banks have to play on climate change and that, far from representing an entirely new objective, the bank of england ’ s work in this space sits firmly within the bounds of our mission to maintain monetary and financial stability. 1 we have an important role to play, but it is governments, businesses, investors, and individuals that have the most difficult and impactful decisions to make in driving the transition to a net - zero economy. today i want to build on those remarks to reflect on central banks ’ climate - related work to date and to consider how it will need to evolve if we are going to continue to meet our remit. i will address this by talking about three main areas of our work : firstly, improving the understanding of climate - related financial risks across the financial system and macroeconomy ; secondly, developing and embedding climate risk management in the financial firms that we regulate ; and finally, seeking to achieve best practice through our operations as a central bank. i will begin with our work to understand climate risks across the broader financial system and the macroeconomy. the network

governor of the bank of england, march 2020 see ‘ it ’ s not easy being green – but that shouldn ’ t stop us : how central banks can use their monetary policy portfolios to support orderly transition to net zero ’ speech by andrew hauser and options for greening the bank of england ’ s corporate bond purchase scheme, bank of england, may 2021 all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice critical in getting this right, and so are currently seeking feedback on our proposed framework. we are keen to hear from a range of experts and stakeholders over the coming weeks to inform our next steps. the need for us to act in this space was clear and unambiguous. first, there is increasingly persuasive evidence that emissions, and so climate risks, are systematically underpriced in financial markets. this means that continuing to replicate the structure of the sterling corporate bond market, without taking explicit account of the climate impact of bond issuers, is no longer in fact a truly ‘ market neutral ’ approach. and second, the remit of the mpc was updated in march this year to clarify that, subject to achieving price stability, the committee should support the transition to net - zero as part of the government ’ s economic strategy. 11 the cbps will remain a monetary policy tool, with its overall target stock of assets set by the mpc in order to achieve its primary inflation objective. however, from q4 this year we intend to modify our approach to the composition of assets we buy, in order to take account of climate considerations. our approach will be guided by three principles. first, we will look to incentivise companies to take decisive actions which contribute to an orderly transition of the overall uk economy to net - zero. second, given the relatively small scale of the cbps in the context of capital markets, we will seek to influence the thinking of other, larger investors, as well as learning from them. thirdly, our requirements of firms will become more demanding over time, including as improvements in data and metrics allows us more precisely to monitor climate behaviour, and further to sharpen the incentives we set. the discussion paper sets out how we intend to operationalise these principles and incentivise firms to put in place, and abide by, credible plans to reduce emissions over time. conclusion as i have outlined, we have come far,