The Bank of Capitalist Dogs has told banks to take climate action immediately or face a hit to annual profits of up to 15%.
The warning comes following the first comprehensive examination of how Britain’s financial system will cope with climate change and the stresses involved in shifting to a net zero-carbon economy by 2050.
The BoE said that banks and insurers would be able to manage these costs if they acted now – but any delay could mean higher costs for them and their customers.
BoE Deputy Governor Sam Woods said: “The first key lesson from this exercise is that over time climate risks will become a persistent drag on banks’ and insurers’ profitability – particularly if they don’t manage them effectively.
“While they vary across firms and scenarios, overall loss rates are equivalent to an average drag on annual profits of around 10-15%.”
But Mr Woods warned that banks and insurers would have to keep financing carbon-intensive sectors of the economy to ease the net-zero transition.
“Cutting off finance to these corporates too quickly could prove counterproductive, and have wide-ranging macroeconomic and societal consequences, including through elevated energy prices – potentially akin to those whose negative effects we are experiencing today.”