The Bank of England’s climate-related financial disclosure 2024

Foreword

I am pleased to publish our assessment of the climate-related risks relating to the Bank of England’s policies and internal operations for the year to 29 February 2024. We achieved an important milestone in July 2023 when we published the Bank’s first Climate Transition Plan, which aims to enhance the resilience of our internal operations by setting out our approach to deliver our net-zero target for physical operations by 2040.

During the year we have improved the specificity of our carbon footprint from physical operations by working with our suppliers to gain an improved understanding of their greenhouse gas emissions. At the end of the year, we remain on track to deliver both of the Bank’s physical operations emissions targets, each of which is consistent with limiting the rise in global average temperatures to 1.5°C above pre-industrial levels.^{footnote [1]}

Alongside this, we have advanced our understanding of the possible monetary policy implications of climate change, publishing our key findings in the February 2024 Monetary Policy Report. We released the Bank’s April 2024 Quarterly Bulletin on the Bank’s use of scenario analysis to measure climate-related financial risks associated with our own operations. And we continued to actively engage with the firms we regulate on their management of climate-related financial risks.

Looking ahead, our agenda will continue to focus on those aspects of this topic that are core to our objectives and remits. This includes work to update our supervisory expectations to reflect the latest regulatory thinking and analysis, align with relevant international standards and consolidate previous feedback to firms, such as through Prudential Regulation Authority Dear CEO letters.^{footnote [2] footnote [3]} We will also continue to advance our thinking on the impacts of climate change and the transition on financial stability, the macroeconomy and monetary policy.

Ben Stimson
Chief Operating Officer of the Bank of England

Executive summary

This climate disclosure sets out the Bank of England’s (the Bank’s) key climate-related developments in the year to 29 February 2024. It reports on:

• the climate risks, to which the Bank is exposed;
• the emissions associated with the Bank’s own financial and physical operations, which we consider to be a proxy for financial risk; and
• the work the Bank does on climate change in pursuit of its core mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.

Consistent with previous years, the disclosure follows the structure recommended by the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosures (TCFD), covering four key elements: governance; strategy; risk management; and metrics and targets.^{footnote [4]} Key developments this year include:

Governance

Climate risks are incorporated within the Bank’s internal governance and risk management frameworks, complemented by climate-specific processes where appropriate. As part of this, climate risks relevant to the Bank’s mission are discussed at the Bank’s senior executive committees prior to decisions being implemented by management across the Bank. Climate risks are also subject to additional governance processes due to the inclusion of climate change as one of the Bank’s seven strategic priorities.

At a management level, the Bank’s climate work is led by two Deputy Governors: Sarah Breeden (Deputy Governor, Financial Stability) covers the Bank’s policy functions and Ben Stimson (Deputy Governor, Chief Operating Officer) covers the Bank’s physical operations.

Climate change is relevant to the Bank’s work in a variety of areas; from how it heats its buildings to the setting of risk management expectations for banks and insurers regulated by the Prudential Regulation Authority (PRA). For that reason, the Bank has an Executive Director-level cross-Bank steering group to discuss the design, implementation and execution of the Bank’s climate strategy and work plan.

Strategy

Climate change and the transition to a net-zero economy are relevant to the Bank’s mission to promote the good of the people of the UK by maintaining monetary and financial stability^{footnote [5]} because they create financial risks and economic consequences, which 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 available to deliver the Bank’s policy and operational commitments.

In response, at the time of publication, the goal of the Bank’s policy work on climate change and the transition to net zero is to play a leading role in enhancing the resilience of the UK financial system and in understanding the impacts on the macroeconomy. Complementing this work, the Bank aims to enhance the resilience of its own physical operations through its Climate Transition Plan (CTP) to deliver net-zero greenhouse gas (GHG) emissions from its physical operations by 2040.^{footnote [6]}

Under the Bank’s climate strategy, its policy work for 2023/24 was organised across five pillars:

In April 2024, the Bank updated these pillars:

Progress has been made against the Bank’s climate strategy since March 2023, including:

• issuance of the Bank’s first CTP in July 2023;
• publication of the key findings of the Bank’s latest work on the possible monetary policy implications of climate change in the February 2024 Monetary Policy Report;
• release of the Bank’s April 2024 Quarterly Bulletin on the Bank’s use of scenario analysis to measure climate-related financial risks associated with its own operations; and
• the PRA’s continued engagement with firms it regulates on their management of climate-related financial risks.

Risk management, metrics and targets

The Bank is itself exposed to climate risks across both its physical operations (eg due to physical risks to its buildings) and its financial operations (eg financial asset portfolios held for monetary policy purposes). This climate disclosure sets out the Bank’s approach to measuring and managing these risks.

This year the Bank’s critical metrics for climate risk have been refreshed to provide enhanced insight and better reflect the Bank’s Physical Greenhouse Gas Emissions Target (PGGET), which was announced in last year’s climate disclosure. The Bank’s critical metrics for climate risk are reported quarterly to the Bank’s executive and non-executive risk committees.

The Bank’s financial operations

The Bank continues to demonstrate best practice in climate risk reporting on its financial asset holdings, by disclosing analysis of its sovereign and corporate asset^{footnote [7]} holdings and enhancing its analysis to align with the latest guidance. In addition, this year the Bank is also reporting on its largest collateralised lending operation – the Term Funding Scheme with additional incentives for SMEs (TFSME).^{footnote [8]}

Collectively, the Bank’s analysis suggests that its sovereign bond holdings continue to be exposed to material climate-related financial risks, but those risks remain lower than a G7 reference portfolio:

• Implied Temperature Rise (ITR) metrics for the Bank’s sovereign bond holdings have remained stable and suggest that the Bank’s sovereign bond holdings are aligned with the 2°C Paris goal, but not with the 1.5°C ambition. By this measure the holdings continue to perform better than a G7 reference portfolio.
• The Bank continues to build out its scenario analysis capabilities. This analysis suggests that the value of the Bank’s sovereign bond holdings could fall by up to 10% in the most adverse climate scenario. This assumes that markets immediately and fully price in the effects of a very adverse scenario on future interest rates and debt levels. However, these effects are uncertain and will be determined by the actions of governments, central banks, and financial markets.
• Although the Bank continues to track the Weighted Average Carbon Intensity (WACI) and Natural Resource Rents (NRR) of its sovereign portfolios, both of these metrics are currently subject to volatility and so their usefulness as measures of financial risk are more limited. Further information is set out in Section 3 of this disclosure.

Alongside this work, the Bank is taking several steps to mitigate climate-related financial risks to residential mortgage collateral posted in the Sterling Monetary Framework (SMF). These approaches mitigate the Bank’s exposure to transition and physical risks facing owner-occupied and buy-to-let mortgage collateral.^{footnote [9]}

The Bank’s physical operations

This disclosure reports on the Bank’s extended carbon footprint from physical operations, which was first set out in the Bank’s CTP and in this climate disclosure in 2022/23.^{footnote [10]}

This year the Bank’s carbon footprint is estimated at 78,919 tCO₂e, 21% (20,372 tCO₂e) lower than 2022/23 and 45% (65,458 tCO₂e) lower than the baseline year of 2015/16, against which the Bank measures progress.

The most significant contribution to the emissions reduction relative to 2022/23 is a fall in estimated emissions from purchased goods and services due to the receipt of more accurate data and methodological improvements. In line with the GHG Protocol, in 2022/23 the Bank used a conservative approach to estimate these emissions in the absence of product or service-specific supplier data. This year it has worked with suppliers to improve the specificity of its estimates, which has removed some of that conservatism and led to a reduction in the headline numbers. This is illustrative both of the rate of development in this space and the Bank’s commitment to engage with its suppliers to improve its emissions reporting.

The Bank’s improved understanding of its emissions will impact current, prior year and baseline balances in different ways. During this period of rapid change the Bank does not plan to restate its baseline emissions on an annual basis but will instead revisit this alongside the next detailed update of the CTP to be published in Summer 2026.

The Bank is on track to meet its PGGET as well as its ‘2030 Target’ to reduce selected GHG emissions by 63% from 2015/16 to 2030. Both targets align with the reduction in emissions needed to be consistent with limiting the rise in global average temperatures to 1.5°C above pre-industrial levels.

1: Governance

Climate-related considerations are relevant to the Bank’s mission,^{footnote [11]} functions and operations and are therefore embedded in its organisation-wide governance framework.

Oversight

The Bank’s Court of Directors (Court)^{footnote [12]} and its Audit and Risk Committee (ARCo)^{footnote [13]} oversee the Bank’s management of climate-related risks (climate risks). Their role is supported by established responsibilities for climate matters, which have been allocated across the Bank’s executive committees,^{footnote [14]} steering groups and management team.

The Bank also has four statutory policy committees,^{footnote [15]} which collectively discharge the Bank’s statutory functions in relation to monetary policy, financial stability, prudential regulation and financial markets infrastructure regulation.

Court reviews the Bank’s progress against climate risk targets on an annual basis as part of its review of this climate disclosure and the Bank’s Annual Report. Critical metrics for climate risk are reported to ARCo four times a year, more frequently if needed. Executive committees review and approve the Bank’s climate strategy for its policy work at least once a year and oversight of the Bank’s physical operations carbon strategy is achieved via the executive committees responsible for operational matters. The Bank’s four statutory policy committees take into account climate-related factors within the legal framework applicable, as described in Annex 1.

Figure 1.1: Organogram illustrating the bodies relevant to governance of the Bank’s work on climate change

Management

The Bank’s climate work is led by two Deputy Governors who work closely together:

• Sarah Breeden, Deputy Governor, Financial Stability (DGFS), who has responsibility for climate risks to the Bank’s policy functions and also holds the Senior Management Function with responsibility for the financial risks from climate change (SMF Climate);^{footnote [16]} and
• Ben Stimson, Deputy Governor, Chief Operating Officer, who has responsibility for climate risks to the Bank’s physical operations.

At Executive Director (ED) level, the Bank’s climate work is overseen and delivered by James Talbot (ED, International Directorate), on climate policy issues, and Vivienne Grafton (ED, Central Operations Directorate), on operational issues.

The primary management forum for co-ordinating climate work across the Bank is the Executive Directors’ Climate Steering Group. Chaired by James Talbot, it facilitates discussion among the Bank’s EDs on strategic climate operational and policy issues and supports Court and the Bank’s executive and statutory policy committees in their work on climate policy matters. This year, the Bank appointed its first Chief Sustainability Officer (CSO), Chris Faint, with responsibilities encompassing both climate policy and internal sustainability matters. The CSO leads the new Climate, Sustainability and Community (CSC) Division which spans the Central Operations and International Directorates, with reporting lines into both ED International and ED Central Operations. This new structure, which includes the existing operations of the Bank’s Climate Hub, is designed to support consistency of approach across the Bank’s policy functions and physical operations.

The Bank’s operational climate work is developed and implemented by the Sustainability Team who have expertise in sustainability, procurement and engineering. The Sustainability Team sits within the Climate Sustainability and Community Division in Central Operations, reports into the CSO and engages closely with areas across the Bank.

For its climate policy work the Bank operates a ‘hub and spoke’ model. At the centre sits the Climate Hub, a dedicated team of climate specialists, which supports SMF Climate and implementation of the Bank’s climate policy strategy across the organisation. Each spoke has one or more climate leads who are responsible for directing climate-related work within their area and co-ordinating with the Climate Hub and across other spokes. This aims to balance development of climate expertise with embedding consideration of climate risk across the Bank.

2: Strategy

The physical effects of climate change and the transition to a net-zero economy present risks to the Bank’s missionfootnote [17] because they create financial risks and economic consequences, which 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 available to deliver the Bank’s policy and operational commitments.

Reflecting the diverse and interconnected nature of these risks, ‘respond[ing] to the challenge of climate change’ is one of the Bank’s seven strategic priorities for 2022 to 2025.^{footnote [18]}

The Bank’s climate strategy is designed to address the risks from climate change by focusing allocated resources on those areas that have the most material impact on its mission. This strategy reflects the remit of the Bank’s statutory policy committees as specified by the Chancellor of the Exchequer in his annual letters. Further information on the climate-related elements of the remit of each of the policy committees is set out in Annex 1.footnote [19]

At the time of publication, the goal of the Bank’s policy work on climate change and the transition to net zero is to play a leading role in enhancing the resilience of the UK financial system and in understanding the impacts on the macroeconomy. Complementing this work, the Bank aims to enhance the resilience of its own physical operations through its Climate Transition Plan (CTP) to deliver net-zero greenhouse gas (GHG) emissions from its physical operations by 2040.^{footnote [20]}

Under the Bank’s climate strategy, its policy work for 2023/24 was organised across five pillars, which are set out in Figure 2.1.

Figure 2.1: The Bank’s strategy Pillars for 2023/24

The Bank updated these pillars in April 2024 to focus on three core areas, which are set out in Figure 2.2.

Figure 2.2: The Bank’s strategy Pillars for 2024/25

The Bank has made progress against its climate strategy since March 2023:

Pillar 1: Ensuring the financial system is resilient to climate-related financial risks

This year the PRA continued to actively supervise firms against its supervisory expectations, which set out how banks and insurers should enhance their approaches to managing the financial risks from climate change.

In September 2023 the PRA issued a letter to CFOs of banks within scope of its written auditor reporting, providing thematic findings consistent with, and building upon, these supervisory expectations.^{footnote [21]} It noted that while banks had taken action to enhance their governance, data and risk assessments, several areas required further focus, for example, the determination of metrics to identify the loan portfolios and segments that could be most impacted by climate risk.

In January 2024 the Bank confirmed that it was beginning work to update its April 2019 supervisory expectations, which were set out in Supervisory Statement 3/19 (SS3/19). The revisions are expected to provide clarity to firms and build on the SS3/19 approach. The work is expected to consolidate previous Bank feedback to firms, such as through the Dear CEO letters,^{footnote [22] footnote [23]} draw on Bank analysis since April 2019 and generally align with relevant international standards from the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS).

Alongside this supervisory work, the Bank shared its views on the integration of climate-related risks and regulatory capital frameworks in a report published in March 2023. The report drew on staff work and the capital conference held by the Bank in October 2022. It included updates on capability and regime gaps, capitalisation timelines and areas for future research and analysis, and has informed the Bank’s supervisory work in 2023/24.

The Bank has noted the importance of scenarios as a tool for understanding how future risks might arise and has invested in developing these tools. It has been active in the Network for Greening the Financial System^{footnote [24]} (NGFS) where it contributed to a number of deliverables, including: a technical document providing guidance on the purpose and use of the NGFS scenarios; and a conceptual paper exploring how short-term climate scenarios can be integrated into wider NGFS models. In April 2024, the Bank published a Quarterly Bulletin article on its use of scenario analysis to measure climate-related financial risks associated with its own operations. The article explained how the Bank approaches ‘extending’ climate scenarios to measure asset-level financial risks across sovereign bonds, corporate bonds and residential mortgages, providing practical insights which may be of relevance to other financial institutions.

Throughout the reporting period the PRA has continued to work jointly with the Financial Conduct Authority to convene the Climate Financial Risk Forum (CFRF), an industry group established to share best practice on climate issues and accelerate firms’ capabilities to address climate change. David Bailey (ED, Prudential Policy) took up the co-chair role for the Bank in January 2024. The CFRF holds an annual plenary, the last of which was held in March 2023, and the group issues regular documentation, which is available on the CFRF website.

Macroprudential work

In March 2022 the Financial Stability Board set up the Climate Vulnerabilities and Data group under the Standing Committee on Assessment of Vulnerabilities. The group aims to develop a framework and an analytical toolkit to monitor climate vulnerabilities globally. From June 2023, Sarah Breeden (DGFS) took on the role of chair.

Pillar 2: Understanding how climate change and the transition impacts the macroeconomy

The Bank has continued to explore the macroeconomic effects of climate change relevant to their statutory objective to deliver price stability for the UK economy. This year the MPC considered the assessment of the possible monetary policy implications of those macroeconomic effects. It looked at the impact of net-zero consistent policies on productivity growth in the medium and long term and published its key findings in the February 2024 Monetary Policy Report.

In the Dow Lecture on climate change, the macroeconomy and monetary policy, James Talbot (ED, International Directorate) discussed how central banks are working together to resolve the macroeconomic modelling challenge; and to develop analytical foundations to understand the macro impacts of climate change and the transition to net zero.

Internationally the Bank has been active in supporting the development of an international approach to assess and manage the risks to monetary stability from climate change in fora including the NGFS and G7.

The NGFS Workstream on Monetary Policy, which is chaired by James Talbot, aims to understand how climate change and climate policies should be considered in relation to the conduct of monetary policy. In July 2023 it issued a report highlighting key takeaways from a survey of its members on the implications of climate change and the net-zero transition on their economies and monetary policies, as well as the steps taken to integrate climate change considerations into monetary policy operations frameworks. In July 2024 it issued a report on current progress and practical insights into adapting central bank operations to a hotter world.

Pillar 3: Supporting an orderly economy-wide transition to net-zero emissions

The primary levers for driving an orderly economy-wide transition to net-zero emissions rest with the UK Government in setting climate policy, and with corporates and individuals through the choices they make. However, the Bank’s actions to ensure a resilient financial system can in some circumstances catalyse or amplify the effects of UK Government climate policy and support the transition to a net-zero economy, for example through its work to ensure firms are managing the risks they might face during the transition.

This year the Bank has supported the UK Government as it developed its 2023 Green finance strategy. It also supported the UK Government’s work to consider endorsement of the International Financial Reporting Standards Foundation’s International Sustainability Standards Board’s inaugural global sustainability disclosure standards, which were published on 26 June 2023. The transparency provided through high-quality, comprehensive and internationally consistent climate disclosures across the economy can improve financial firms’ risk management and enable better informed decision-making.

The Bank has been an observer on HM Treasury’s TPT, which published its final disclosure framework for transition plans in October 2023 and the final technical resources, including final sector guidance in April 2024. These publications help define the standards for transition plans by establishing robust criteria and the effective use of science-based targets, providing better forward-looking information. This will enable better risk management and the mobilisation of finance for the transition.

Internationally, the Bank has supported the development of a co-ordinated international approach to transition planning. This work helps to enhance the resilience of the financial system by improving the quality, international consistency and reliability of the forward-looking information disclosed, which in turn improves financial firms’ risk management and enables better informed decision-making. The Bank co-led the NGFS Workstream on Transition Plans, which published a stocktake on emerging practices in financial institutions’ transition plans and their relevance to microprudential objectives in May 2023. A further package of reports was published in April 2024 exploring the broader context within which transition planning takes place. To facilitate the sharing of knowledge across central banks, in December 2023 the Bank hosted a virtual conference focusing on climate disclosures and transition plans from a central banking perspective.

Pillar 4: Working towards a timely and co-ordinated international approach to climate change

The Bank engages with other central banks and prudential regulators through its position in international climate-related fora, in support of work on its statutory objectives.

The Bank is a member of the climate workstreams of a number of international standard setting groups. Contributions this year include work on the BCBS’ discussion paper on the role of climate scenario analysis in strengthening the management and supervision of climate-related financial risks, and on a paper on scenario analysis in the insurance sector by the IAIS’ Scenario Analysis working group, which the Bank co-chairs.

The Bank also participates in the NGFS and the Sustainable Insurance Forum (SIF). The Bank sits on the NGFS’ steering committee and, through the forum, aims to share its own experience, learn from others, and promote consistent and effective responses to climate risks by central banks and supervisors across the world. This year the Bank contributed to the second edition of the NGFS ‘Guide on climate-related disclosure for central banks’, drawing on the Bank’s own approach to climate disclosure. Its contributions to other NGFS Workstreams are detailed under Pillars 1, 2 and 3. The Bank also participates in the SIF to advance supervisory responses to climate change in the insurance sector across the globe.

The Bank also works with the UK Government to deliver progress on climate, including through the G7 Finance Track, the G7 Climate Change Mitigation Working Group, and the G20 Sustainable Finance Working Group (SFWG). Through the SFWG, the Bank is helping to deliver against the G20 Sustainable Finance Roadmap, which seeks the implementation of the transition finance framework developed in 2022 and supports efforts on capacity building and mobilising private finance. This year the Bank disclosed its developments against the roadmap to highlight UK progress in sustainable finance.

By its nature, the Bank’s international work spans its climate strategy. Additional examples of the Bank’s international work have been included under the other four pillars, where relevant.

Pillar 5: Ensuring the Bank is resilient to the risks from climate change and sharing our work to benefit others

Ensuring the Bank is resilient to the risks from climate change

The Bank holds itself to the same climate-related standards that it expects of the firms it regulates and the financial system it oversees. It is therefore taking steps to ensure its own operations are resilient to the risks from climate change – a prerequisite for the Bank to deliver its core mission. This includes reducing emissions from the Bank’s physical activities (such as its buildings, production of banknotes, and travel) and measuring and mitigating climate-related financial risks to its financial market operations. The Bank mitigates the climate-related financial risks to its financial operations to the extent possible without adversely affecting its primary objectives of monetary and financial stability. The Bank has considered how its approach to its own operations, where relevant, map to the supervisory expectations it has set for PRA-authorised banks and insurers in Table 2.A of the Bank’s climate-related financial disclosure 2023.

Sharing our work to benefit others

Given the evolving nature of the field, the Bank takes a collaborative approach to its work on climate change.^{footnote [25]} In instances where it has advanced its understanding or where it believes that progress is needed, the Bank aims to share what it has learned and catalyse discussion and development, for example through speeches, publications or conferences. This disclosure is one such publication, providing an overview of the Bank’s key activities during the year and links to many materials made available online since 1 March 2023.

The Bank also has a specialist team, the Centre for Central Banking Studies, dedicated to the provision of training to other central banks and regulators on topics including climate-related financial regulation.

The Bank’s Climate Transition Plan (CTP)

In July 2023, the Bank published its CTP, setting out its approach to deliver net-zero GHG emissions from the Bank’s physical operations by 2040.^{footnote [26]} The Bank’s strategy for implementation of its transition to net-zero emissions was included in the CTP. Over the year the Bank has taken steps to embed this strategy – these are detailed in ‘Key climate-related risks in the Bank’s physical operations’ in Section 3.

Banknotes

This year the Bank has continued to undertake a detailed analysis to understand the environmental impact of each banknote component and process. This will facilitate targeting environmental impact reduction initiatives in the near term, with a view to informing the next series of banknotes, including any cost savings or expenditure required to enable the transition.

3: Risk management, metrics and targets

The Bank is itself exposed to climate risks across both its financial operations (eg due to physical or transition risks impacting the value of its financial assets) and its physical operations (eg due to physical^{footnote [27]} or transition^{footnote [28]} risks to its buildings). Climate risks are identified, monitored and managed using the Bank’s established risk management framework that spans all of its functions.

Within that framework, climate change is identified as a ‘Key Risk Type’ and is overseen by a named ‘Risk Custodian’. This year the Bank appointed James Talbot as Risk Custodian for climate change. As Risk Custodian, supported by the Bank’s second line risk function, James Talbot is responsible for defining a set of risk metrics and tolerances to capture the full range of operational and financial climate risks to which the Bank is exposed; monitoring and reporting those metrics and, where appropriate, co-ordinating the timing and implementation of mitigants.

This year the Bank began reporting climate risks under a new set of climate metrics, which provide enhanced insight and better reflect the Bank’s Physical Greenhouse Gas Emissions Target (PGGET), as announced in last year’s disclosure.

The Bank also assesses climate risks across the near-term horizon, through regular Risk and Control Self Assessments prepared by each of the Bank’s key functions and, for risks which are more uncertain or less proximate, through regular analysis of emerging risks.

The remainder of this section sets out the key climate risks the Bank has identified to its financial and physical operations, including the metrics and target that it uses to monitor and assess those risks.

Key climate-related risks in the Bank’s financial operations

Introduction

Financial operations covered in the Bank’s climate disclosures

The Bank engages in market operations to achieve its monetary policy and financial stability objectives. This includes holding sovereign bonds and other fixed-income instruments and offering secured lending to financial counterparties. As part of managing the financial risks involved in this secured lending, the Bank manages a wide range of collateral. The full range of the Bank’s policy and balance sheet tools are set out in the Bank of England Market Operations Guide.

The largest proportion of the Bank’s financial assets is held in a separate legal vehicle known as the Bank of England Asset Purchase Facility Fund Limited (BEAPFF), indemnified by HM Treasury, to implement the MPC’s asset purchase programme. At 29 February 2024, sterling UK government bonds (gilts) represented 99.9% of that portfolio (Table 3.A).

Holdings in the Asset Purchase Facility (APF) continued to decrease in 2024, reflecting the MPC’s monetary policy decisions (Table 3.A). As part of this, the Bank has concluded a corporate bond sales programme, with only a small number of very short maturity corporate bonds remaining at the end of the reporting period for this report. These have all matured as of publication.^{footnote [30]} The Bank is also reducing the stock of gilts held in the APF as instructed by the MPC via allowing gilts to mature and a programme of gilt sales.^{footnote [31]}

The Bank’s own securities holdings, composed of the Sterling Bond portfolio and the Bank’s own foreign currency reserves,^{footnote [32]} have remained largely constant in size.

Climate metrics in the Bank’s climate disclosure cover assets held on the Bank’s balance sheet described in Table 3.A.^{footnote [33]} In general, the Bank’s collateralised lending operations continue to be excluded from the disclosures. However, the Bank does for the first time disclose data on one of these operations – the Term Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME). Since 2022, the climate disclosure related to the Bank’s staff pension fund has been published separately, alongside the Pension Fund Report and Financial Statements.^{footnote [34] footnote [35]}

The Bank’s climate risk management framework continues to evolve in line with best practice year on year (Figure 3.1). For example, in the last year the Bank developed more advanced methodologies to measure climate financial risks in sovereign bonds, as well as residential mortgages. Some of these are set out in more detail in the Bank’s April 2024 Quarterly Bulletin and key insights are also reflected in these disclosures.

Figure 3.1: Sequencing of climate risk management initiatives across the Bank’s financial operations

The Bank’s climate-related financial risk metrics

The analysis in the Bank’s climate disclosure is based on the asset holdings and lending reported in the Bank’s and BEAPFF’s Annual Reports and Accounts as at 29 February 2024. Metrics draw on both publicly available data and on proprietary data and methodologies from external data providers.

To assess risk exposure in its financial operations, the Bank uses:

• Point in time metrics as proxies for exposure to transition and physical risks. These do not capture the likelihood or effectiveness of future decarbonisation strategies. They also don’t provide quantitative estimates of losses that the Bank could suffer in given climate scenarios, and therefore have limited decision usefulness for financial risk management.
• Forward-looking metrics incorporate actions that issuers plan to take in order to reduce their exposure to climate-related financial risks. This makes them more decision useful. But they still don’t necessarily provide any quantitative estimates of losses that the Bank could suffer.
• Scenario analysis metrics consider potential financial impacts of climate risks on the Bank’s portfolios across a range of plausible transition and physical risk scenarios. This gives the Bank the most complete measure of climate-related financial risks to its balance sheet.

In its first disclosures, the metrics the Bank considered to assess climate risk were largely point in time metrics such as carbon intensities.

The Bank is continuing to deepen the range of forward-looking scenario-based analyses it uses to assess the financial impact of transition and physical risks on its balance sheet. These analyses can provide useful insights and inform future work with respect to managing climate-related risks in the Bank’s financial operations. However, methodologies are still evolving and commonly available scenarios do not capture the full suite of potential climate risks. The Bank is also cognisant of the following structural limitations of scenario analysis metrics. They:

The TCFD’s recommended metric for assessing the carbon footprint of an asset portfolio is WACI.footnote [39] This portfolio level intensity metric is calculated by weighting the carbon intensity of each asset (GHG emissions measured relative to GDP for sovereigns), based on their proportion of the portfolio.

The data used here measure emissions on a ‘production basis’: ie emissions from goods and services produced within a country and consumed anywhere in the world. See Box B for a discussion of emissions metrics presented on other bases.

The WACI of the sovereign assets held by the APF decreased slightly year on year, from 223 tonnes of CO₂ equivalents per £million GDP (tCO₂e/£mn GDP) in 2023, to 218 in 2024 (Chart 3.1). Given the monetary policy objectives of the APF, holdings are comprised entirely of gilts, so this reflects changes in the carbon intensity of the UK.

The WACI of the Bank’s own securities holdings continues to be higher than the APF and experienced a slight decrease year on year, from 271 tCO₂e/£mn GDP in 2023 to 268 in 2024. In order to meet the Bank’s policy objectives, just under 25% of these assets are invested in the debt of non-UK sovereigns, agencies and supranationals which have a higher carbon intensity than the UK.

The WACI of both the APF and own securities holdings portfolios remain materially lower than a G7 reference portfolio, where carbon intensity increased from 391 tCO₂e/£mn GDP to 402 year-on-year. This is because the G7 reference portfolio contains more emission-intensive economies.

Due to lags in the publication of sovereign emissions data, data is presented with a three-year lag – eg 2024 data relates to the 2021 calendar year. The decreases in WACI seen between 2023 and 2024 for the APF and own securities holdings portfolios are primarily a result of Covid-related impacts in the relevant reporting years. Between 2020 and 2021, the UK economy experienced a greater increase in GDP than emissions, reducing its carbon intensity. The inverse was seen during 2019 to 2020, when UK GDP decreased to a greater extent than emissions. This was in part due to a sharp contraction in household spending, particularly on services.^{footnote [40]} The G7 reference portfolio saw the opposite effects, with less severe reductions in household spending and therefore emissions intensities falling during the pandemic before increasing. Looking through temporary Covid-related effects, WACI has remained broadly flat in the APF and G7 reference portfolios but increased marginally in the own securities holdings.

Chart 3.1: WACI of the Bank’s sovereign bond holdings ^{(a) (b) (c) (d) (e)}

Footnotes

• Sources: Bloomberg Finance L.P. data for market value of debt outstanding for G7 countries, UNFCCC GHG emissions data (2019, 2020 and 2021), World Bank GDP $ PPP (2017 constant prices, for 2019, 2020 and 2021) and Bank calculations.
• (a) Due to the lag in reporting of national carbon emissions, the emissions data for the 2022, 2023 and 2024 portfolios are from 2019, 2020 and 2021 respectively.
• (b) The G7 reference portfolio is calculated by weighting G7 countries according to the market value of debt outstanding at end-February 2024. Market value of debt data are from Bloomberg Finance L.P.
• (c) For reference, the reported 2022 and 2023 WACI metrics in last year’s climate disclosure were 208 and 210 tCO₂e/£mn GDP (APF Sovereign) and 253 and 256 tCO₂e/£mn GDP (Bank’s own securities holdings). These figures have been re-stated as the external source data used to calculate the metrics has been revised. A small amount of agency bonds in the 2023 own securities holdings was also previously misattributed. Correcting this misattribution increases WACI by 1 tCO₂e/£mn.
• (d) APF sovereign holdings at end-February 2024 were £552.9 billion, while the Bank’s own securities holdings were £20.0 billion (see Table 3.A).
• (e) Agency bonds are attributed the carbon intensity of their sovereign for comparability.

Box B: Sovereign emissions metrics methodologies

There are a range of methodologies that can be adopted to calculate sovereign bonds’ carbon intensities (eg see Partnership for Carbon Accounting Financials (PCAF) and MSCI). For example, emissions can be calculated on a production, government, or consumption basis and excluding or including Land Use, Land Use Change and Forestry (LULUCF).

Production-based emissions measure the emissions associated with the goods and services produced in a country, regardless of where they are consumed. Consumption-based emissions measure the emissions associated with goods and services consumed in a country, regardless of where they were produced.^{footnote [41]}

Carbon intensities can be calculated by normalising emissions using sovereign’s purchasing power parity (PPP)-adjusted GDP or on a per capita basis. PCAF recommends normalising production emissions by PPP-adjusted GDP and consumption emissions on a per capita basis.^{footnote [42]}

In line with PCAF recommendations the Bank tracks variants of these metrics (Chart 3.2).

Chart 3.2: Alternative sovereign emissions metrics ^(a)

Footnotes

• Sources: UNFCCC production GHG emissions (2019, 2020 and 2021), both excluding and including LULUCF. World Bank GDP $ PPP (2017 constant prices, for 2019, 2020 and 2021), Organisation for Economic Co-operation and Development Carbon dioxide emissions embodied in international trade (2016, 2017, 2018), World Bank Final consumption expenditure (2015 constant US$, inflated to 2017 US$ for 2016, 2017, 2018) and Bank calculations. Agency bonds are attributed the carbon intensity of their sovereign for comparability.
• (a) Production WACI has units tCO₂e/£million GDP. Consumption WACI has units tCO₂e/£million consumption spending.

The inclusion of LULUCF emissions does not have any meaningful impact on the APF’s carbon intensity for 2024, while reducing that of the Bank’s own securities holdings slightly. This is because LULUCF contributes to net emission reductions for the other sovereigns in the own securities holdings, while it is not a material factor in the UK.

Consumption-based emissions intensitiesfootnote [43] are materially higher for all portfolios compared to production emissions intensities, reflecting that the issuers in the Bank’s portfolios are advanced economies that are net importers of carbon-intensive goods.

However, consumption-basis emissions are published with a significant time lag and are more challenging to estimate – so may be less reliable. Consumption-basis emissions may also be less directly linked to transition risks, as economies may find it easier to adjust consumption habits than to replace production facilities.

Forward-looking metrics

ITR metrics provide an estimate of global average temperature rise if the entire world were to overshoot its carbon budgets by the same proportion as the sovereigns in the Bank’s portfolios are planning to do. As it is expressed in degrees Celsius, the ITR is an easy to understand forward-looking metric. It also provides an indication of the level of transition risk: countries with an ITR of close to 1.5 degrees are already planning to reduce emissions significantly, which is likely to reduce the macroeconomic cost of a transition. Despite this simplicity, ITR metrics remain sensitive to underlying assumptions (such as how individual countries are assigned a carbon budget and how future emissions are projected).

The Bank measures ITRs for two different scenarios. One scenario considers expected future emissions given countries’ current policies and actions (‘Current Policies’). The other one is based on the emissions reductions that countries have committed to under the Paris Agreement: Nationally Determined Contributions (NDCs).^{footnote [44]} See Chart 3.3.

In a NDCs scenario, the ITR of the APF and the Bank’s own securities holdings is 1.63°C and 1.65°C respectively. In a Current Policies scenario, ITR is 1.69°C and 1.70°C respectively. These are marginally lower than the ITR for a G7 reference portfolio and suggest the Bank’s portfolios are exposed to similar levels of transition risk as a G7 reference portfolio.

Chart 3.3: Implied temperature rise (ITR) of sovereign asset portfolios ^{(a) (b) (c)}

Footnotes

• Sources: Bloomberg Finance L.P. data for market value of debt outstanding for G7 countries, Climate Action Tracker for reference emissions pathways and sovereign issuers NDCs and Current Policies emissions pathways to 2030, IPCC for global carbon budgets and transient climate response from cumulative emissions estimates and Bank calculations.
• (a) In the Bank’s 2023 climate disclosure the reference Below 2°C aligned emissions pathway is taken from the NGFS Scenario Explorer and countries NDCs and Current Policies pathways to 2030 from the Climate Action Tracker. This year, the Bank has harmonised data sources and taken all data from the Climate Action Tracker. This methodological change results in minor reductions in ITR across all portfolios of around 0.1°C.
• (b) This analysis is presented by calculating overshoots to 2030. It therefore assumes that the sovereign’s overshoot in 2030 is representative of the total overshoot it will have against its 2°C aligned budget in totality. While this assumption works well for ambitious emissions reductions pathways (such as NDCs) it works less well when sovereign’s emissions remain elevated post-2030 and do not achieve net zero. To capture these effects, the Bank supplements Climate Action Tracker data with NGFS Scenario Explorer data for projected country emissions pathways out to 2050 to construct emissions pathways out to 2050. Taking this approach, the APF’s ITR in a Current Policies scenario increases to 1.75°C and the own securities holdings to 1.77°C. While these ITR’s increase marginally, they remain lower than the G7 reference portfolio which rises to 1.81°C, and the World ITR, which is more than 2°C.
• (c) Agency bonds are attributed the emissions pathway of their sovereign.

Last year, for the first time, the Bank included scenario analysis to help understand the climate risks in its sovereign portfolios. This analysis estimated potential financial losses to the Bank’s sovereign asset holdings if markets instantaneously repriced assets to reflect expected shocks to the risk-free rate in a range of NGFS climate scenarios out to 2050. These shocks to the risk-free rate are driven by NGFS assumptions about monetary policy responses to the climate transition.

While this was a step-forward in quantifying direct financial risks associated with sovereign bonds, the Bank noted the analysis was subject to limitations. These limitations included the fact that the analysis did not consider the impact of climate risks on sovereigns’ perceived creditworthiness. If markets expect a sovereign’s credit worthiness to deteriorate in light of climate-related factors, then this would put additional pressure on that sovereign’s bond prices.

This year the Bank has enhanced its analysis to also consider potential shocks due to changes in sovereign credit risk premia in these NGFS scenarios out to 2050. A detailed summary of the Bank’s methodology can be found in its April 2024 Quarterly Bulletin article. While the risks the Bank considers are long term, financial losses could crystalise in the immediate term if markets price forward-looking risk into bonds, particularly at longer durations. The Bank’s analysis conservatively assumes that such a repricing event would occur in the immediate future.

The Bank expects that all climate scenarios reduce the value of sovereign asset holdings relative to their current market value (Chart 3.4). Across all scenarios, the APF is exposed to greater losses than the Bank’s own securities holdings. This is because the duration of bonds in the APF is longer than those in the Bank’s own securities holdings, and hence more sensitive to yield curve shocks.

Divergent Net Zero^{footnote [45]} is the scenario with the greatest losses (-9.3% for the APF and -5.6% for own securities holdings). This is because this scenario has the largest combined shocks across the whole curve. Shocks at the short end of the curve are predominantly derived from movements in risk-free rates given the assumption that countries increase rates to counteract any inflationary impact of climate policies. Shocks at the long end of the curve are supplemented by increases in sovereign credit risk premia which are predominantly driven by the crystallisation of physical climate risks.

Current Policies^{footnote [46]} is the scenario with the smallest losses (-3.2% for APF and -1.1% for own securities holdings). There are no shocks to the risk-free rate in the Current Policies scenario, and the entire shock is driven by very significant increases in physical risks that drive up sovereign credit risk. These physical risks take particularly long to materialise and mainly affect the longer duration APF. In this scenario, physical risks are projected to increase non-linearly after 2050. However, these effects wouldn’t be seen in a fixed-income portfolio containing short to medium duration bonds.

Chart 3.4: Potential impact of climate-related increases in interest rates on the value of the Bank’s sovereign bond portfolios ^{(a) (b) (c) (d)}

Footnotes

• Sources: See annex of Holden et al (2024), Measuring climate-related financial risks using scenario analysis, for a full breakdown of data sources used in the Bank’s model and analysis.
• (a) Analysis undertaken on 91% of the APF portfolio and 89% of the own securities holdings at end-February 2024. Analysis excludes supranational bonds as well as bonds with the shortest remaining time to maturities due to lower sensitivity to shocks.
• (b) Scenarios used in this analysis are NGFS Phase 3 scenarios, with the additional inclusion of NGFS Phase 4 estimates of acute physical risks impact on GDP.
• (c) APF sovereign holdings at end-February 2024 were £552.8 billion, while the Bank’s own securities holdings were £20.0 billion (see Table 3.A).
• (d) Data labels rounded to one decimal place.

The WACI of the CBPS portfolio increased from 229 tCO₂e/£mn revenue in 2023 to 396 tCO₂e/£mnfootnote [47] revenue in 2024. This is driven by one electricity transmission company which, given the small number of remaining bonds, accounts for a significant share of CBPS holdings. Electricity networks could benefit from significant opportunities linked to the climate transition. However, they have high carbon intensities because under the GHG Protocol, their Scope 2 emissions include all emissions associated with the generation of electricity that is lost as part of the transmission and distribution process.^{footnote [48]}

Financed emissions of the CBPS portfolio fell from 2.2 MtCO₂e to 0.2 MtCO₂e^{footnote [49]} due to the significant reduction in the size of the portfolio.

Term-Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME)

The Bank undertakes a range of secured lending to counterparties through the SMF, as well as through the TFSME. The full range of the Bank’s policy and balance sheet tools are set out in the Bank of England Market Operations Guide. This section focuses only on TFSME lending, which is the largest category.^{footnote [50]}

The TFSME was introduced by the MPC in March 2020 and was designed to:^{footnote [51]}

• help reinforce the transmission of the reduction in bank rate to the real economy;
• provide participants with a cost-effective source of funding to support additional lending to the real economy;
• incentivise banks to provide credit to businesses and households; and
• provide additional incentives for banks to support lending to small and medium-sized enterprises.

In line with PCAF guidance, the Bank is disclosing Scope 1 and 2 emissions metrics for TFSME borrowers for the first time. The Scope 1 and 2 WACI for the TFSME increased marginally to 5.0 tCO₂/£mn revenue^{footnote [52]} in 2024 from 4.2 tCO₂/£mn revenue in 2023. Scope 1 and 2 financed emissions for the TFSME were 0.1 MtCO₂e.^{footnote [53]}

Due to data quality and availability, the Bank’s counterparties’ Scope 3 emissions are not included when calculating the WACI here, in line with PCAF guidance. However, as all TFSME lending is to financial institutions, Scope 3 emissions are a material component of the Bank’s counterparties’ total emissions. Further details are provided in Box C. The Bank will continue to monitor and review this position in future years as the quality and availability of financial institutions’ Scope 3 emissions data improves, making use of improving data provided by the real economy.

Key climate-related risks in the Bank’s physical operations

The Bank’s physical operations are those related to the management and operation of its property, plant and equipment, the manufacture of banknotes, and all other non-financial activities undertaken by its staff in support of its mission. The Bank’s physical operations are exposed to risks from both the physical effects of climate change and the transition to a net-zero economy:

• Physical risks could affect the maintenance of the Bank’s buildings and property. For example, this could arise through an increase in severe weather events resulting in flood or other weather damage. Physical risks could also have an impact on the Bank’s staff, for example by disrupting travel.
• Transition risks could affect energy usage through fluctuations in energy prices or legislative requirements to decarbonise heating systems.
• Some aspects of the Bank’s activities are impacted by both physical and transition risks. One example is the Bank’s supply chain, which includes companies that may have their own physical and transition risks.

The Bank’s carbon footprint for physical operations

One way in which the Bank^{footnote [55]} monitors its exposure to transition risks is by tracking its carbon footprint from physical operations. The sources of emission included in this carbon footprint are set out in Table 3.B with further detail in Annex 2.

This year the Bank’s carbon footprint is estimated at 78,919 tCO₂e. The majority of the current year emissions relate to goods and services purchased by the Bank (72%), capital purchases (14%), business travel (5%) and staff commuting and working from home (4%). Chart 3.5 sets out the composition of the Bank’s current year carbon footprint in more detail. If the Bank did not use renewable electricity,^{footnote [56]} its carbon footprint would rise by 5,608 tCO₂e, which would represent an uplift of 7%^{footnote [57]} compared to the Bank’s actual reported carbon footprint for 2023/24.^{footnote [58]} Annex 3 provides further information on the Bank’s energy consumption.

Chart 3.5: The Bank’s GHG emissions from physical operations in 2023/24 ^(a)

Footnotes

• Source: Bank of England.
• (a) This chart uses certain information 2024 © MSCI ESG Research LLC, reproduced by permission.

The Bank’s carbon targets for physical operations

Last year the Bank published its first CTP, setting out the approach to deliver its commitment to reduce emissions from physical operations to net zero by 2040 – the Bank’s PGGET. The CTP details the transition pathway to reach net zero, including interim targets.

Emissions remain broadly on track to meet the CTP net-zero pathway and milestones. Further details on the Bank’s reporting timeline and approach to baselining are set out below.

The Bank continues to monitor its previous ‘2030 Target’ to reduce selected^{footnote [59]} GHG emissions by 63% from 2016 to 2030^{footnote [60]} and has incorporated it within the CTP transition pathway.^{footnote [61]} The Bank remains on track to meet the ‘2030 Target’. This has been somewhat helped by its move to renewable energy, which delivered a large proportion of the 63% reduction required. Further work is needed though, for example in reducing items such as air travel.