The Bank of England's climate-related financial disclosure 2026

Message from Sarah John

I am pleased to publish the Bank of England’s climate-related financial disclosure for the year ended 28 February 2026. The Bank has a mandate to maintain monetary and financial stability for the people of the United Kingdom. To fulfil that mandate we need to understand and manage the material climate-related risks to our economy, our financial system and our own operations, which underpin our ability to operate effectively.

Over the past year, we have further integrated climate considerations across our functions – strengthening supervisory expectations for firms’ management of climate risks, deepening our assessment of macroeconomic and monetary policy impacts, and enhancing our analysis of financial stability risks. We have also met our first interim decarbonisation milestone for physical operations and continued to develop our analytical toolkit to assess risks to our balance sheet, while recognising the uncertainties inherent in these assessments.

Alongside this disclosure, we are updating our Climate Transition Plan, first published in 2023. The plan sets out our pathway to delivering the Bank’s 2040 net-zero target for physical operations, and how this contributes to operational resilience through prudent risk management and careful stewardship of public resources.

Together, these publications demonstrate our commitment to transparent, evidence-based management of climate‑related risks, supporting a resilient financial system and long-term UK growth.

Sarah John
Chief Operating Officer of the Bank of England

1: Strategy

The Bank of England’s (Bank’s) mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. The physical effects of climate change and the transition to a net-zero economy (the transition) are relevant to the Bank’s mission because they could affect:

• the safety and soundness of firms the Bank regulates;
• the stability of the financial system;
• the economic outlook in a way that could have a bearing on the appropriate monetary policy stance; and
• the financial resources and physical assets available to deliver the Bank’s policy and operational commitments.

The Bank’s climate strategy is to address climate-related risks (climate risks) to the extent they are relevant to delivery of the Bank’s mission and reflect the objectives and remit of the Bank’s statutory policy committees specified by the Chancellor of the Exchequer in her annual letters (Annex 3). The strategy is organised across three pillars (Figure 1.1).

In his most recent speech, James Talbot (Executive Director, International Directorate and Executive Sponsor for Climate Change) reflected on the progress the Bank has made over the past 12 years in responding to climate change in pursuit of its objectives.^{footnote [1]}

Over the last financial year, the Bank has continued to integrate the implications of climate change into its core functions in line with its mandate, making progress against the three pillars of its climate strategy.^{footnote [2]}

Resilience of individual firms and the financial system to climate risks

The Bank continued to monitor climate risks to the financial system using the framework published in 2024.^{footnote [3]} Recent analysis points to increasing evidence that climate risks to firms and financial stability are becoming more proximate.^{footnote [4] footnote [5]}

Bank staff estimate that, in a severe but plausible scenario, if investors were to rapidly reprice financial assets, including government debt, corporate bonds and equities, to reflect climate risks, the resulting move in asset prices could be comparable to the moves seen in recent market stress episodes. A data collection by the Bank and Prudential Regulation Authority (PRA) in 2025 has shown that UK banks could also face climate-related credit losses over coming years, particularly related to transition risks from sharp increases in energy and carbon prices.^{footnote [6]}

Over the longer term, as physical risks from climate change intensify, reduced insurance coverage could transfer risks to households, businesses, banks, and governments.^{footnote [7]} The Financial Policy Committee (FPC) has therefore highlighted that supporting insurability – including through investment in resilience to physical climate risks – would benefit UK financial stability.^{footnote [8] footnote [9]} For example, collaboration between businesses, households, and governments, such as the Flood Re Build Back Better scheme, may help reduce the financial impacts of extreme weather events. These findings underline the need for individual financial firms to further strengthen their capabilities to price and manage climate risks, particularly using climate scenario analysis (CSA).

Since the PRA first set its supervisory expectations in 2019, some PRA-supervised firms have strengthened their climate risk capabilities. However, progress has been uneven, and further work is required for all firms to meet expectations. The PRA’s updated expectations (Supervisory Statement 5/25, SS5/25) responded to industry calls for greater clarity and guidance, supporting firms as they build resilience to climate risks.

To support implementation, the PRA is working with industry, including through the Climate Financial Risk Forum (CFRF),^{footnote [10]} which provides a collaborative forum for firms to develop practical tools and guidance. The latest CFRF materials support firms in building a range of capabilities in areas such as resilience, adaptation, and scenario analysis.^{footnote [11] footnote [12]} A collaborative approach between authorities and the UK financial sector will help ensure resilience to climate risks, in line with the PRA’s secondary objective to facilitate effective competition and the international competitiveness of the UK economy and its growth in the medium to long term.

Resilience of the Bank to climate risks

This year, the Bank achieved its first interim decarbonisation milestone with a 43% reduction in greenhouse gas emissions (emissions) from physical operations since 2015/16, exceeding the targeted 40% reduction.

Alongside this disclosure, the Bank has published the second edition of its Climate Transition Plan (CTP), which updates the Bank’s strategy to reduce its emissions, including a recalculation of the transition pathway and a restatement of historical emissions to reflect methodological improvements. The CTP provides further information on the Bank’s 2025/26 emissions and its decarbonisation milestones.

The Bank has also taken further steps to incorporate CSA into its in-house credit rating methodology for sovereign issuers and financial counterparties. Credit ratings inform both exposure limits and the capital the Bank holds against these exposures. Box B places this work in the context of the Bank’s broader approach to managing climate risks to its balance sheet.

Understanding how climate change impacts the macroeconomy

In recent years, the Bank has sought to increase understanding of how climate change and the transition affect the macroeconomy over the shorter horizons relevant for monetary policy. Through the NGFS, it has worked with other central banks to assess these effects, finding increasing impacts on output and inflation, and therefore on monetary policy.

The NGFS Workstream on Monetary Policy (WSMP) has been central to this work. Chaired by James Talbot, it has developed a conceptual framework to understand how acute physical impacts from climate change and government transition policies affect the economy,^{footnote [13]} and explored how these channels can be incorporated into macroeconomic models for practical use.^{footnote [14]} In collaboration with the IMF, the WSMP published analysis quantifying the macroeconomic effects of alternative transition policy pathways and the implications for monetary policymakers.^{footnote [15]} Its most recent report – Climate change and monetary policy strategy: a guide for central banks – has brought these insights together setting out a practical playbook on how central banks can assess different climate impacts in support of delivering their price stability mandates.

This work shows that, while climate policies are for governments, understanding the macroeconomic and financial system impacts of climate change and the transition is relevant for the Bank’s primary objectives of maintaining monetary and financial stability.^{footnote [16]}

2: Risk management

Physical operations

The Bank assesses climate risks arising from the operation of its property, the manufacture of bank notes and other non-financial activities (physical operations).

In line with its restatement policy and to improve accuracy and accountability,^{footnote [25]} in 2025/26, the Bank has restated its historical emissions, including the 2024/25 emissions and the 2015/16 baseline against which progress is measured. Further information on the emissions restatement is set out in the Bank’s 2026 CTP.

In 2025/26 the Bank’s emissions from physical operations were 35,306 tCO₂e, representing a small year-on-year decrease relative to the restated 2024/25 emissions of 35,728 tCO₂e. Further details are provided in Annex 1.

This year, the Bank has begun using CSA to assess the potential impacts of flooding and subsidence across its estate. This includes use of a combined flood risk metric covering coastal, pluvial and fluvial sources, and British Geological Survey projections of subsidence risk to 2070; both analyses are based on an RCP8.5 scenario. The results indicate risks consistent with those faced by commercial buildings in the south-east, but do not identify any site-specific vulnerabilities requiring adaptation in the short to medium term.

Financial operations

The Bank also assesses the climate risks to the market operations that it engages in to achieve its monetary policy and financial stability objectives. This includes holding fixed-income instruments and offering secured lending and repo to financial counterparties.^{footnote [26]} The financial exposures covered by this disclosure are set out in Table 2.A and are consistent with those reported in the Bank’s Annual Report and Accounts as of 28 February 2026.

To assess climate risk in its financial operations, the Bank uses a combination of point in time, forward-looking and scenario analysis metrics. Despite the challenges outlined in Box C, scenario analysis remains the best available tool to quantify climate-related financial risks to the Bank’s balance sheet.^{footnote [27]}

Asset holdings

Point in time metrics including carbon footprint

The Weighted Average Carbon Intensity (WACI) of a portfolio is based on the carbon-intensity of its issuers and provides a simple proxy for the portfolio’s exposure to transition risk, based on current emission levels.^{footnote [28] footnote [29]}

The WACIs of the APF and the Bank’s OSH portfolios remain materially lower than that of a G7 reference portfolio. The WACI of the assets held in the APF continued to decline year on year, reaching 184 tCO₂e/£mn GDP in 2026. Given the APF’s monetary policy objectives, the portfolio is comprised entirely of gilts, so this reduction reflects changes in the carbon intensity of the UK economy. By contrast, the WACI of the OSH portfolio – although materially lower than that of a G7 reference portfolio – increased from 278 tCO₂e/£mn to 310 in 2026. This increase was driven by higher portfolio weights on issuers with relatively higher carbon intensities, reflecting the Bank’s policy objectives, return considerations and risk management. These metrics are calculated on a production basis (Chart 2.1).

Consumption-based emissions intensities are materially higher for all portfolios, reflecting the fact that the issuers in the Bank’s portfolios are advanced economies that are largely net importers of carbon-intensive goods and services (Table A2.1).^{footnote [30]}

Forward-looking metrics

Implied Temperature Rise (ITR) metrics estimate the global average temperature increase that would occur if global carbon budgets were exceeded by the same proportion as the sovereigns in the portfolio. The metric provides a simple proxy for the portfolio’s exposure to transition risk, based on expected future emissions reductions.

Assuming countries’ emissions fall in line with their Nationally Determined Contributions (NDCs), the ITR of the APF and the OSH portfolios is 1.64^oC and 1.66^oC, respectively. Under an alternative assumption that emissions evolve in line with currently implemented climate policies, the ITR increases modestly to 1.68^oC for the APF and 1.72^oC for the OSH. In both cases, the ITR remains marginally lower than that of a G7 reference portfolio (Table A2.1).

Scenario analysis on asset holdings

The Bank uses scenario analysis to help understand the climate risks in its asset portfolios and to estimate potential financial losses. The analysis applies NGFS Phase V climate scenarios to model potential shocks to the risk-free component of interest rates and sovereign credit risk premia over a horizon to 2050.

Concerns about the academic evidence underpinning physical risk damage estimates in the NGFS Phase V scenarios mean that the resulting physical risk impacts are subject to heightened uncertainty.^{footnote [31]} These issues, and their implications for the scenario analysis results, are discussed in Box C.

The largest bond price declines occur under the Net Zero 2050 scenario, with the value of the APF and OSH falling by 8.8% and 4.8% respectively (Chart 2.2). Losses under Net Zero 2050 are primarily driven by transition risks impacting the short end of the curve, reflecting higher interest rates as monetary policy responds to inflationary pressures arising from elevated carbon pricing.^{footnote [32]} Shocks at the long end of the curve are exacerbated by modest increases in risk premia, driven by the crystallisation of physical risks. By contrast, losses under the Current Policies scenario are entirely driven by physical risks, which affect sovereign credit risk premia and materialise over longer time horizons and mainly affect long maturity securities in the APF.^{footnote [33]} There is no policy rate shock in the Current Policies scenario, as climate policies evolve broadly in line with market expectations, resulting in no inflationary surprises requiring a monetary policy response.

The analysis is conservative. It assumes instantaneous market repricing to reflect expected shocks to sovereign yields under each scenario. This tail risk assumption is applied to estimate the impact of a severe, worst-case repricing outcome across the climate scenarios assessed. Losses associated with movements in sovereign yields should not be interpreted as the macroeconomic cost of different scenarios. From a macroeconomic perspective, the impact of different climate scenarios on economic variables, such as real GDP, is likely to be more informative than changes in interest rates.

The metrics setting out the climate risks to the Bank’s asset holdings are also summarised in Annex 2, Table A2.1.

Secured Lending and Repo Operations

Point in time metrics including carbon footprint

The WACI of the Bank’s secured lending and repo operations reflects the carbon-intensity of its financial counterparties and provides a simple proxy for their exposure to transition risk.

The overall carbon-intensity of the Bank’s financial counterparties is driven almost entirely by Scope 3 emissions, which reflect the emissions of real economy borrowers financed by those counterparties, rather than by Scope 1 and 2 emissions associated with their own operations.^{footnote [34]}

The combined Scope 3 WACI of the Bank’s repo and secured lending operations remains significantly lower than that implied by lending to a sample of large international banks (Table A2.2). This reflects both the composition of UK bank’s loan books and the structure of the UK economy to which they lend.

Between 2025 and 2026, the Scope 3 WACI increased from 762.6 tCO₂/£mn of interest revenue to 998.2 tCO₂/£mn. This increase reflects changes in utilisation patterns across the Bank’s facilities (including the unwinding of TFSME and increased usage of STR and ILTR) as well as shifts in the types of firms drawing on these facilities.

Scenario analysis on secured lending and repo operations

The Bank uses scenario analysis to translate information on its financial counterparties’ loan books into potential impacts on their Common Equity Tier 1 (CET 1) ratios under a severe climate scenario.

Under a High Transition Risks scenario, the weighted average CET1 ratio across the Bank’s financial counterparties could fall by c.2.0 percentage points (ppts) of risk-weighted assets (RWAs). These results are derived from desk-based, top-down analysis using a set of conservative assumptions. While the implied reductions in CET1 ratios indicate a material impact on firms’ financial resilience, they are smaller than the CET1 ratio reductions typically observed in the Bank’s regular stress testing exercises.^{footnote [35]}

The metrics setting out the climate risks to the Bank’s secured lending and repo operations are also summarised in Annex 2, Table A2.2.