BoE urges banks and insurers to make climate risk management ‘decision-useful’
James Talbot, executive director of BoE’s international directorate, outlined the bank’s approach to supervising climate risk governance for financial institutions
It’s been over a decade since the Bank of England began exploring the relevance of climate risk to its supervision. Following an initial focus on insurers, its scope quickly expanded to other parts of the UK’s financial system including banks.
In a speech, James Talbot, executive director of BoE’s international directorate, outlined how its expectations have changed since then and where they are headed.
Talbot, speaking today at the London School of Economics and Political Science, said supervision of banks and insurers was the most developed component of BoE’s climate work.
Climate supervision
BoE began integrating climate into normal supervisory engagements in 2022. Since then, Talbot said, both banks and insurers have taken ‘concrete and positive steps’.
“However, firms’ level of readiness to manage climate-related risk vary and our overall assessment was that all firms needed to make further progress”, he added.
Responding to market demand for clarity, BoE’s latest update to supervisory expectations of climate risk management came in December 2025.
Outlining the key message from this update, he told the audience:
“We want banks and insurers to have the capabilities – and the senior level engagement – needed to treat climate-related risks like any other operational or financial risk”.
Talbot said the BoE expects firms to monitor and manage climate risk in ways that are not only decision useful but also robust and credible.
“That means clear senior ownership, information flowing to the board, and evidence that climate considerations are shaping strategy and day‑to‑day decisions”, he explained.
Talbot cited the case of scenario modelling as an example of these new expectations. Here, he said, BoE expects companies to “begin with the question they are trying to answer, whether that is portfolio resilience or how risks evolve over different time horizons, and then pick and tailor the scenarios accordingly”.
Monetary policy
In addition to supervision, Talbot also outlined crucial progress being made on the most nascent component of the bank’s climate work – monetary policy.
“Our focus is beginning to intensify”, said Talbot who also serves as chair of the NGFS workstream on monetary policy. The workstream has brought together over 60 central banks to investigate the macroeconomic impact of climate change.
Talbot said an the NGFS will be publishing its assessment of climate change effects on monetary policy.
Explaining on-going work on physical risk assessments for monetary policy, Talbot said central banks have been assessing weather as a driver of prices for several years.
“Back in 1805, the Bank installed a wind dial in its boardroom, connected to a weathervane on the roof. An easterly wind signalled an increase in trade, as it allowed merchant ships to sail up the Thames to the Port of London – and a need to increase the supply of banknotes in circulation”, he pointed out.
“Over two hundred years later, the impact of weather on the economy is somewhat different, but arguably just as important”, Talbot added.
