Firms should use the design of the CBES and the underlying NGFS scenarios to inform their own scenario analysis, build their understanding of the climate risks they face, and enhance their climate risk management capabilities. I hope it will act as a catalyst, increasing firms’ knowledge of the risks they face, and incentivising them to take steps to address these risks. In turn, this will require firms’ clients in the real economy to improve their understanding of how climate change and the transition to a net-zero economy could impact their businesses and operations. Lessons learned from the CBES will also be shared with the NGFS as part of the collaborative approach taken by central banks, and on that note, I want to commend the ACPR’s recent publication of its own ambitious scenario exercise for the French financial system. 3  Through both its scenario work in the NGFS, and its internal analysis, the Bank has developed a clearer understanding of where climate knowledge gaps persist and what these might mean for our objectives. For example, there is particular value in the deepening of our understanding of the macroeconomic implications of climate change and the pathways to net-zero. It is for governments to set out a pathway to net-zero and the policy levers that will be used to deliver it. But as central banks, we will need to understand any implications of the transition for the economic outlook and our potential policy responses.
The scenarios bring together the financial and economic impacts of different temperature and climate policy pathways – a critical input for firms and policymakers to understand the future impact of the decisions they are making today. Scenario analysis makes questions like how resilient is this business, this financial system, or this set of policies, to each climate scenario possible to address. Accordingly, the Bank continues to be a strong advocate of the NGFS’ work and in 2019 announced our intention to assess the resilience of individual banks, insurers, and the wider UK financial system to different 1 2  See ‘Tackling climate for real: the role of central banks’ speech by Andrew Bailey, June 2021 NGFS climate scenarios 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  climate scenarios through a Climate Biennial Exploratory Scenario exercise (CBES). I am pleased to say that exercise, which draws on the NGFS scenarios, will launch next week on 8 June. The CBES will involve the UK’s largest banks and insurers and explore three different climate scenarios, testing different combinations of physical and transition risks over a 30-year period. It is an important tool to size the financial exposures, to understand how different bank and insurance business models will be affected and how they might respond, and finally as a way of improving firms’ risk management practices through the process of carrying out the exercise.