[13] This presents a challenge when considering implications for policy – and highlights the importance of continuing to plug the kinds of capability gaps I discussed earlier. As the results publication sets out, the Bank will engage with firms individually and collectively to help them target their efforts, and share good practices identified in this exercise. Implications for policy I hope it’s clear by this point that the CBES will be a valuable tool for helping us and financial firms to understand the challenges ahead. This exercise is not going to be used to set capital requirements for banks and insurers. But it clearly sheds light on that debate. The CBES results make clear that climate risk is a first-order strategic issue for the firms we regulate. But in my view it is not yet clear that the magnitude of transition costs require a fundamental recalibration of capital requirements for the system. [14] A persistent drag on profitability would be very nasty for firms, but so long as they are able to continue to make sufficient profits to maintain their capital buffers, its impact on safety and soundness might be less material. Had the results of this exercise suggested a fundamental threat to the solvency of these firms, our response would of course have been quite different. Set against that high level view, though, a world with climate change is without doubt riskier than one without.
Ultimately, global warming is still limited to 1.8°C by the end of the scenario (2050) relative to pre-industrial levels, but then remains around this level at the end of the century. [8] A ‘no additional action’ (NAA) scenario in which governments around the world fail to enact policy responses to global warming, other than those actions already taken. As a result, global temperature levels continue to increase, reaching 3.3°C higher relative to pre-industrial levels by the end of the scenario. In the scenario this leads to serious environmental impacts, including extreme weather events, destroyed ecosystems and rising sea levels. In some cases these changes are irreversible. While these changes take longer to manifest, they give rise to increasing and irreversible shocks that continue to grow beyond the scenario: UK and global GDP growth are permanently lower and macroeconomic uncertainty increases. Broadly speaking, the first two scenarios focus on risks from the transition to net zero, whereas the third one focuses on physical risks from climate change. And to reiterate a theme I will come back to later, the risks from climate change have been managed by the end of the first two scenarios – whereas in the third they continue to build. CBES headlines The results of the CBES were published today, and I would encourage anyone with an interest in  Page 5  this topic to read them in full.