a transition in thinking and action remarks given by mark carney, governor of the bank of england international climate risk conference for supervisors, de nederlandsche bank, amsterdam 6 april 2018 i am grateful to alice carr, edd denbee, tanveer hussain, carsten jung, krish kistnassamy, alex michie, alex ntelekos, dimitris papachristou and matt scott for their assistance in preparing these remarks. all speeches are available online at www. bankofengland. co. uk / speeches it is a great pleasure to be here in amsterdam, at the international climate risk conference for supervisors, jointly organised by the de nederlandsche bank, the banque de france and the bank of england. in my remarks, i will take stock of the progress made in addressing climate - related financial risks since the paris agreement of late 2015. in particular, i will consider how far there has been a transition in thinking and action. as we ’ ve heard today, the thinking has coalesced around three channels through which climate risk affects financial stability : - the physical risks that arise from the increased frequency and severity of climate - and weatherrelated events that damage property and disrupt trade ; - the liability risks stemming from parties who have suffered loss from the effects of climate change seeking compensation from those they hold responsible ; and - the transition risks that can arise through a sudden and disorderly adjustment to a low carbon economy. the last risk is the most challenging. when i first spoke about the financial stability risks from climate change, at lloyd ’ s of london in 2015, i highlighted two paradoxes relating to transition risk in particular. first, the future will be past. that is, climate change is a tragedy of the horizon which imposes a cost on future generations that the current one has no direct incentive to fix. the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors. once climate change becomes a clear and present danger to financial stability it may already be too late to stabilise the atmosphere at two degrees. the second paradox is that success is failure. that is, too rapid a movement towards a low - carbon economy could materially damage financial stability. a wholesale reassessment of prospects, as climate - related risks are re - evaluated, could destabilise markets, spark a pro - cyclical crystallisation of losses and lead to a persistent tightening of financial conditions : a climate minsky moment. the

6 july 2020. supervisory statement 3 / 21 - non - systemic uk banks : the prudential regulation authority ’ s approach to new and growing banks following consultation paper 9 / 20 – non - systemic uk banks : the prudential regulation authority ’ s approach to new and growing banks. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice are likely to grow out of the simpler regime. and the discussion paper asks for comments on how that kind of optionality could be introduced. but that might not always be possible or appropriate for all firms, so we will need to design the simpler regime in a way which minimises barriers to growth as far as possible. to sum up our approach to the complexity problem : we are looking for ways to simplify requirements for small firms which, as a package, will reduce the costs of regulation without reducing firms ’ resilience. i will now move on to the question of how that can be done. streamlined or focused it ’ s possible to imagine two approaches to creating a simpler regime. one approach would see us sitting down with the current rule book and, working through it pen in hand, striking or simplifying out those parts which aren ’ t needed for non - systemic banks and building societies. the result would be a thinner version of the current rulebook with the same chapters but fewer words. that is what i will call a ‘ streamlined ’ approach because it would deliver a streamlined version of current requirements. the other approach would have us starting with a blank page and identifying the minimum number of requirements needed to maintain small firms ’ resilience. in this case, the result would be a completely different rulebook with different chapters. i will call this the ‘ focused ’ approach because it would be solely focused on the risks faced by eligible small firms. what are the implications of choosing one or other of these approaches? you may have noticed that i have spoken so far about the complexity of requirements, but not their calibration. that is because questions about the level at which requirements are set can only be properly addressed once an approach has been chosen. this is a natural consequence of our commitment to maintaining current levels of resilience. as i said earlier, this means that when we simplify some aspects of the regime we may need to tighten others. that tightening might take the form of increasing the calibration of remaining requirements. one might for example