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 in their data and modelling capabilities, and  Page 3  carefully scrutinising the data they get from third parties. It means ensuring Boards and senior executives see climate risk as a strategic priority. [3] And ultimately, it means ensuring firms hold sufficient financial resources to absorb losses arising from climate change.
Based on analysis on the location of impairments within the four-digit postcodes analysed. 13. And we know there are gaps. Since this was our and the firms’ first exercise we deliberately chose not to capture all possible sources of risk. 14. But this is something that the Bank will be exploring further, and where we have invited external analysis and research to inform our views. We will be holding a conference later in the year to discuss.