VANCOUVER, B.C.–Noting he was speaking on a day when wildfires were burning in Greece and Canada, Dele Adeleye offered credit unions here an overview of how one national regulator is approaching risks related to climate change.
Adeleye, head of division, small mutuals and strategic goals with the Bank of England, explained that in the U.K. credit unions have actually been carved out of rules around climate change, due to their limited size. He added, however, “We recognize credit unions’ vital role in retail services.” He further noted legislation has been proposed to allow CUs to offer expanded services so as to fulfill all of a household’s needs.
The Objectives
According to Adeleye, the Bank of England’s climate objectives are two-fold:
- To enhance the management of risk
- To get to net zero.
To get there it is important to understand what makes credit risk different, according to Adeleye. He said the differentiators include that they are:
- Far reaching, non-linear and irreversible. “The impact of climate risks may be abrupt, difficult to predict, and irreversible,” according to Adeleye. “There is no technology that is deployable at scale to reverse climate risk.”
- Foreseeable, although uncertain
- For action today to minimize future risks
On a Journey
Adeleye said the Bank of England is on what he called a “multi-phase journey.”
It is currently in phase three in which it is trying to broaden and deepen its understanding of the risk, as well as how the firms it supervises are responding to risk. There is also the issue of the size of firms and their ability to respond, he added.
Adeleye said the Bank of England has engaged in a number of outreach efforts around climate risk, including by central banks and supervisors.
Issues Being Examined
Among the issues it is examining:
- Governance. What do we expect the FI to do, including the board and management? “We need leadership on this topic and it starts at the top,” said Adeleye. “Much of this starts with the board.”
- Risk Management. “This is where firms have the biggest challenge” in getting the data across all business lines.
- Scenario Analysis. “There is a lot of investment here.”
- Disclosure. “We have seen a lot of improvement here.”
No Need for Reinvention
BoE is providing support in the form of working groups,
Adeleye stressed that the small firms it supervises don’t need to reinvent the wheel.
“They just need to take all the information BoE has published and tailor it to their needs,” Adeleye stated.
The one area where he believes financial firms can improve is in data.
“Data is where I think we need firms and the rest of the industry to improve. It’s a pervasive issue. It cuts across all of the pillars. It’s all hands on deck.
Next Steps
According to Adeleye, the Bank of England has decided to pause the publishing of information, and instead create a period of time during which firms can adopt that information and put it into practice. The expectation is that over the next few years the BoE will reissue the supervisory statements it has already published.
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