Bank of England Climate Biennial Exploratory Scenario (CBES, 2021)
A Bank of England exploratory exercise that projected over thirty years, under three scenarios, the climate losses of the largest UK banks and insurers.
A classic stress test checks that an institution survives a severe shock over one or two years, and can end in a capital requirement. The CBES deliberately gave up both: it projects over thirty years and draws no requirement from it, in order to measure the size and distribution of losses rather than survival. It sets three scenarios against each other: early and orderly action, late and abrupt action, and no additional action at all, where warming reaches 3.3°C by 2050. Banks and insurers simulated, counterparty by counterparty, the effect of climate on their loans, investments and claims. The exercise showed that total cost is lowest with early action, and that institutions would pass much of the losses on to their customers.
Published on May 24, 2022, the results indicated that, absent an effective response, climate risks could cause a persistent drag of around 10% to 15% a year on the profitability of participating banks and insurers; in the no-additional-action scenario, cumulative losses reached £334 billion by 2050.
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