UK banks still committed to climate goals, Bank of England executive insists | Banking

A Bank of England governor has insisted that UK banks still show a “vibrant” commitment to climate targets despite the recent dissolution of the global net zero target-setting group.

David Bailey, executive director for prudential policy at the bank’s regulatory arm, the Prudential Regulation Authority (PRA), downplayed concerns over the fact that major lenders such as HSBC and Barclays were following their US counterparts in abandoning their membership of the UN-backed Net Zero Banking Alliance (NZBA). Those exits led to the once-vaunted NZBA’s closure last month.

“We are focused on our responsibilities around the financial risks arising from climate change and firms continue to actively engage with us on this issue,” Bailey told the Guardian. He said their engagement “remains as vibrant as it has over the last few years.”

American banks, including JP Morgan and Goldman Sachs, began renouncing their NZBA membership before Donald Trump took office last fall. Some analysts said the departures were intended to forestall “anti-woke” attacks by right-wing US politicians.

HSBC and Barclays withdrew their memberships at the beginning of August. The hollow NZBA, which no longer has the backing of the world’s biggest banks, launched a review into its future and announced plans to close in early October.

But Bailey said the Bank of England was still monitoring climate risks and left the door open to more climate stress tests that would gauge the banking sector’s preparedness for global warming disasters.

But he said climate risks need to be balanced against other emerging dangers. Regulators, for example, are trying to contain potential risks linked to the boom in private lending, an unregulated corner of the financial industry that offers loans to businesses.

“Of course, we must evaluate climate risk proportionately alongside all other risks. We cannot focus on just one risk… But we must focus on climate risk. This is important. And we continue to accelerate our work in this area.”

The PRA was praised for becoming the first central bank to test climate preparedness in the financial sector in 2021, but criticized for not introducing climate capital requirements that would force lenders to set aside funds to protect against climate-related losses, including some mortgages and loans to heavy polluters.

Bailey’s boss, Sam Woods, will resign as chairman of the PRA in June. Bailey, described by colleagues as a dedicated and “outspoken” member of the regulatory team, is thought to be the internal leader to replace Woods. Katharine Braddick, a senior executive at Barclays who works in the Treasury, has also been named as a potential candidate for the £314,000-a-year position.

Meanwhile, Bailey is working on a series of banking reforms that will help calm the Labor government’s efforts to cut red tape and boost growth in the financial sector.

This includes introducing the “strong and simple” framework to ensure smaller lenders such as Metro Bank and Starling do not have to comply with the same complex rules as large global banks.

Bailey said it was one of the biggest changes to regulation in 30 years and would help smaller banks “compete and grow and deliver the really important services they do to households and businesses across the UK”.