Key financial regulators in the UK are now required to ensure every financial decision they make take climate change into account.
The Financial Conduct Authority (FCA) and Prudential Regulation Committee (PRC), which supervise financial services companies, should take into account the government’s legally binding commitment to transition to a net zero economy by 2050, following letters from Chancellor Rishi Sunak updating their respective remits.
The letter sets out the government’s ambition to deliver a financial system that supports and enables a net zero economy and mobilises private finance behind sustainable and resilient growth.
It follows the publication of the updated remits for the Bank of England’s Monetary Policy Committee (MPC) and Financial Policy Committee (FPC) during the 2021 Budget, which also reflects the importance of environmental sustainability and the transition to net zero.
The move raises global ambition ahead of the COP26 climate summit taking place in Glasgow in November.
In the letter to the FPC, Mr Sunak states: “As the world recovers from the pandemic, we also face a tipping point for our climate. The shift to a world where we are at net zero will mean systemic changes across all parts of our economy. This includes delivering a financial system which supports and enables the transition to an environmentally sustainable net zero economy by expanding the supply of green finance and that is resilient to the physical and transition risks that climate change presents.
“Consistent with its objectives, the Committee should continue to act with a view to building the resilience of the UK financial system to the risks from climate change and support the government’s ambition of a greener industry, using innovation and finance to protect our environment and tackle climate change.”