The Bank of England's climate-related financial disclosure 2025

The Bank is itself exposed to climate risks across its policy work, financial operations and physical operations. The risks arise through two primary categories: physical risks and transition risks.

Physical risks

Physical risks can arise from weather events, such as droughts, floods and storms and ‘chronic’ impacts, such as temperature rise and precipitation changes, which affect labour, capital and land.

If climate risks are not incorporated into banks’ and insurers’ pricing, climate-driven events can cause sudden price adjustments. For example, the value of mortgaged property can fall, resulting in lender losses if the mortgagor defaults. Insurance claims can exceed expectations, resulting in insurer losses and potentially reduced insurance availability and affordability. Such impacts can contribute to financial instability.

Transition risks

Transition risks are those connected to the adjustment towards a net-zero economy. They can arise from developments in climate policy, new technology, and impacts on supply chains. They can prompt a reassessment of the value of assets and create risks for banks and insurers.

Figure 2.1 sets out selected climate-related financial impacts and examples of how they could impact financial stability. Further information on the FPC’s approach to identifying and assessing climate-related financial stability risks can be found in the Section 3 of the November 2024 Financial Stability Report.

Risk management

Climate risks to the Bank are identified, monitored and managed using the Bank’s risk management framework. Within that framework, climate change is identified as a ‘Key Risk Type’ and is overseen by a named ‘Risk Custodian.’

James Talbot (ED, ID) is Risk Custodian for climate change. Supported by the second line risk function, he is responsible for recommending to the Bank’s Audit and Risk Committee a set of risk metrics and tolerances to capture the operational and financial climate risks to which the Bank is exposed. He oversees the monitoring and reporting of those metrics and co-ordinates the timing and implementation of any mitigants.

The Bank also assesses climate risks across the near-term horizon through Risk and Control Self Assessments prepared by the Bank’s key functions and, for risks which are more uncertain or less proximate, through regular analysis of emerging 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 monetary policy and financial stability. This includes holding fixed-income instruments and offering secured lending and repo to financial counterparties. To manage financial risks in secured lending and repo, the Bank manages a wide range of collateral. 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, the Bank of England Asset Purchase Facility Fund,^{footnote [17]} indemnified by His Majesty’s Treasury (HM Treasury). This was set up to implement the Monetary Policy Committee’s (MPC’s) asset purchase programme. Sterling UK government bonds (gilts) represent 100% of the Asset Purchase Facility (APF) and holdings in the APF have fallen, reflecting the MPC’s monetary policy decisions.^{footnote [18]} In the past, the APF also included sterling corporate bonds acquired as part of the Bank’s Corporate Bond Purchase Scheme (CBPS). The Bank’s corporate bond holdings were fully unwound during the reporting period and none were held as of year-end.^{footnote [19]}

The Bank’s Own Securities Holdings (OSH), composed of gilts and foreign currency reserves,^{footnote [20]} are used for policy implementation and to fund the Bank’s policy functions.

In 2024, the Bank disclosed metrics relating to its lending operations and facilities,^{footnote [21]} starting with the Bank’s Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME).

The Bank is expanding its disclosure this year to include the Indexed Long-Term Repo (ILTR) and Short-Term Repo (STR) lending facilities. This is a result of the increasing materiality of repo exposures as part of the Bank’s transition to a repo-led and demand-driven operating framework.

The Bank’s climate risk management framework evolves with best practice (Figure 3.1, The Bank’s climate-related financial disclosure 2024). It assesses and manages risks to its sovereign exposures, credit risk associated with financial institution counterparties, and risks to collateral. In the last year, the Bank has:

• enhanced methodologies to measure climate financial risks in sovereign bonds (Chart 2.2); and
• developed a toolkit to assess credit risks to financial institution counterparties (Chart 2.4).

The Bank’s climate-related financial risk metrics

The analysis in the Bank’s climate disclosure is based on asset holdings and market operations reported in the Bank’s Annual Report and Accounts as of 28 February 2025. Metrics draw on both publicly available and proprietary data from external 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, and do not provide quantitative estimates of losses so they have limited decision usefulness for financial risk management.
• Forward-looking metrics, which incorporate planned actions by firms or governments to reduce exposure to climate-related financial risks. This makes them more decision useful but they do not provide quantitative estimates of losses.
• Scenario analysis metrics, which consider potential financial impacts of climate risks across a range of scenarios. This offers the most comprehensive measure of climate-related financial risks.

This year, the Bank has used climate scenario analysis to evaluate the potential impact on the credit risk of its SMF exposures.

Sovereign asset holdings

Point in time metrics including carbon footprint

The TCFD’s recommended metric for assessing the carbon footprint of an asset portfolio is Weighted Average Carbon Intensity (WACI).^{footnote [22] footnote [23]}

The WACI of the sovereign assets held by the APF decreased from 216 tCO₂e/£mn GDP in 2024, to 197 in 2025 (Chart 2.1). 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 economy.

The WACI of the Bank’s OSH increased slightly, from 264 tCO₂e/£mn GDP in 2024 to 272 in 2025. The increase was driven by increases in the portfolio weights of issuers with higher carbon intensities, reflecting the Bank’s policy objectives, returns and risk.

The WACI of both the APF and OSH portfolios remain materially lower than a G7 reference portfolio, where carbon intensity fell from 399 tCO₂e/£mn GDP to 383 year-on-year, driven by all G7 sovereigns reducing their carbon intensity.

Sovereign emissions data are presented with a three-year lag. Therefore, the reduction in UK carbon intensity was driven by strength in UK GDP growth over 2022, as the economy continued to recover from the pandemic. In addition, the UK emissions also fell over the year, further contributing to the reduction in UK carbon intensity and the APF WACI.

Emissions data in Chart 2.1 are on a ‘production basis’: ie emissions from goods and services produced within a country. In 2024, the Bank disclosed ‘consumption-based’ WACI for the first time. Consumption emissions measure emissions associated with goods and services consumed in a country, regardless of where they were produced. Consumption emissions may be less directly linked to transition risks, as economies may find it easier to adjust consumption than replace production. Nevertheless, they provide a useful complement to production-based emissions and proxy risks associated with the transition of the economy’s demand side to net zero.^{footnote [24]}

Consumption-based WACIs continue to be significantly higher than production-based WACIs because the advanced economies the Bank is exposed to are net importers of carbon-intensive goods. Consumption-based WACI for the APF decreased from 380 tCO₂e/£mn total consumption expenditure in 2024 to 350 in 2025, and from 416 tCO₂e/£mn to 409 for the OSH.^{footnote [25] footnote [26]}

Forward-looking metrics

Implied Temperature Rise (ITR) metrics estimate the global average temperature rise if the world were to overshoot its carbon budgets by the same proportion as the sovereigns in our portfolios are projected to. It provides an indication of the level of transition risk: countries with an ITR close to 1.5^oC are planning to reduce emissions significantly, which may reduce the macroeconomic cost of transition.

We measure ITRs for two different emissions pathways. One considers expected future emissions given countries’ current policies (Current Policies). The other is based on emissions reductions that countries have committed to under the Paris Agreement: Nationally Determined Contributions (NDCs).^{footnote [27]}

In a NDCs scenario, the ITR of the APF and the Bank’s OSH is 1.65^oC and 1.66^oC, respectively.^{footnote [28]} In a Current Policies scenario, the ITR of the APF and the Bank’s OSH is 1.71^oC and 1.72^oC, respectively. These are marginally lower than the ITR for a G7 reference portfolio and similar to those published in the 2024 disclosure.^{footnote [29]}

Scenario analysis

The Bank uses scenario analysis to understand the climate risks in its sovereign portfolios and estimate financial losses. The analysis considers shocks to the risk-free component of interest rates and risk premia based on NGFS climate scenarios out to 2050.

This year the Bank’s analysis has been updated to use the NGFS Phase V climate scenarios. While the economic impacts of physical risks projected in Phase V are larger than Phase IV, they now capture both chronic and acute physical risks. The Bank previously combined its own estimates of acute physical risks with chronic physical risk projections. The result is the transition from Phase IV to Phase V scenarios largely net out and overall losses in the highest transition and physical risk scenarios are comparable to previous years.

The analysis assumes risks are not currently priced and that markets reprice assets to reflect expected shocks to sovereign yields.^{footnote [30]} This is a tail-risk assumption which estimates the impact of a worst-case repricing scenario.

Projected losses should not be mistaken for macroeconomic impacts. From a macroeconomic perspective, impacts of different climate scenarios on economic variables such as real GDP are likely to be much more relevant than changes in interest rates.

In the scenario with the largest consequences for bond prices, the APF value falls by ‑9.4%. The value of the OSH falls by -5.3% (Chart 2.2). Net Zero 2050 has the largest combined shocks across the yield curve, significantly reducing the value of sovereign bond portfolios. Shocks at the short end of the curve are from movements in the risk-free component of interest rates as countries increase short-term interest rates to counteract inflation from high carbon pricing.^{footnote [31]} Shocks at the long end of the curve are exacerbated by increases in risk premia, driven by the crystallisation of physical climate risks.

In the Current Policies scenario^{footnote [32]} the value of the APF falls by -3.6%. The value of the Bank’s OSH falls by -0.9%. There are no shocks to policy rates in the Current Policies scenario. While monetary policy may respond to physical risks, these are not currently modelled by the NGFS due to uncertainty over the scale and direction of impacts.^{footnote [33]} The entire Current Policies shock is therefore driven by significant increases in physical risks that drive up sovereign credit risk premia. These physical risks take particularly long to crystallise and mainly affect long maturity securities in the APF. The NDCs scenario has losses in between Net Zero 2050 and Current Policies (-7.6% for the APF and -3.7% for OSH) because it combines elements from both the Current Policies and Net Zero 2050 scenarios.

Across all scenarios, the APF is exposed to greater losses than the Bank’s OSH. This is because the duration of bonds in the APF is longer than the Bank’s OSH and hence more sensitive to interest rate shocks. In addition, longer maturity bonds are more exposed to physical risks which crystalise later in the scenario. 

Assessing the design of the CBPS greening framework

Between 2016 and 2024, the APF included up to £20 billion of corporate bonds that the Bank acquired via its CBPS. In November 2021, the Bank published a framework for greening the CBPS. The CBPS has now unwound and the Bank no longer has outright holdings of corporate bonds as of the reporting date.^{footnote [34]} The Bank has reviewed the actions it took and sets out its key learnings below.

Background

The Bank’s approach to greening the CBPS involved four tools:

• Targets:  A 25% reduction in WACI by 2025 and net-zero emissions by 2050.
• Eligibility:  Climate-related criteria for eligibility.
• Tilting: Within each sector, the Bank tilted purchases toward stronger climate performers and away from weaker ones.
• Escalation: Escalation of requirements over time.

In November 2021, the Bank began to implement greening the CBPS and applied these criteria to upcoming reinvestment rounds. The green tilting was only operational for the reinvestment programme that took place between November 2021 and January 2022. After January 2022, the Bank started unwinding the CBPS due to monetary policy considerations. Over the months of green tilting, approximately £600 million of reinvestments occurred – 3% of the CBPS. Reinvestments took place for bonds issued by the Water, Property and Finance, Electricity and Energy sectors, to ‘top-up’ sector weights back to target proportions.

Impact of green tilting on probability of purchasing different types of bonds

The greening of the CBPS tilted purchases within sectors towards bonds of firms that were stronger climate performers. Stronger climate performers were those with lower carbon intensities, larger historical reductions in absolute emissions, climate-related financial disclosures, and emissions reduction targets verified by a third party.

Based on their performance across these metrics, firms were given a climate score and allocated into one of four buckets. Bucket A represented the strongest climate performers within a sector, Bucket D the weakest. All else equal, the Bank was prepared to pay a higher price for bonds issued by greener firms. However, the probability of bonds being purchased was also a function of market supply and other considerations.

The Bank’s green tilting approach successfully increased the probability of a bond being purchased if it had a higher climate score (Chart 2.3). Bonds in the strongest climate bucket were 54 percentage points more likely to be purchased than bonds in the lowest bucket.

Impact of green tilting on bond spreads

There is no evidence green tilting influenced market prices. The higher probability of buying greener bonds did not result in lower yield spreads compared to bonds from issuers with weaker climate performance within the same sector. Tilting was operational for three months and the limited amount of reinvestment likely muted impacts.

The Bank found no effect on bond spreads for strong climate performers following the announcement of the CBPS greening. In well-functioning markets, credible bond purchase announcements from central banks can influence yields even before purchases are made. Previous work found that upon announcement of the CBPS, spreads of eligible bonds decreased. However, similar effects were not observed for the announcement of the ‘greening’ of the CBPS. This may be because announcement of greening of the CBPS only communicated a high-level approach and did not explicitly list issuers considered stronger climate performers.^{footnote [35]}

SMF and TFSME

Consistent with the increasing materiality of repo exposures due to the Bank’s transition to a repo-led and demand-driven operating framework, the Bank is expanding the scope of its disclosure to consider climate-related financial risks via secured lending and repo operations. This disclosure covers:^{footnote [36]}

• Short-Term Repo – STR provides central bank reserves for one-week against the highest quality collateral. STR was introduced to ensure that short-term market interest rates remain close to Bank Rate.
• Indexed-Long-Term Repo – ILTR provides central bank reserves for routine sterling liquidity management for a six-month term against the full range of collateral.

This is in addition to the TFSME, which the Bank started reporting in its disclosure last year. This scope expansion ensures the Bank continues to disclose its exposure to material climate-related financial risks across its range of financial operations.

This section broadly follows the recommendations of the TCFD for banks to assess climate-related financial risks in loan portfolios by assessing the climate risk associated with a bank’s counterparties. In addition, the Bank manages climate-related financial risks to which it is exposed through the collateral it receives against these operations.

The STR, ILTR and TFSME provide financing to financial institutions (banks). Banks subsequently lend to households and the real economy. Emissions associated with this lending to the real economy are banks’ Scope 3 financed emissions,^{footnote [37]} which make up the majority of banks’ total emissions. The Bank therefore focuses on estimating these emissions as a proxy for its exposure to climate-related financial risks.

As discussed in Box C of the Bank’s climate-related financial disclosure 2024, the current quality, coverage and comparability of banks’ Scope 3 emissions disclosures is limited. While estimation methodologies have been developed, these are not always comparable across banks with different business models.

To estimate banks’ Scope 3 emissions intensity on a comparable basis, the Bank developed its own estimation model for banks’ loan books.^{footnote [38] footnote [39]} This uses:

• granular information on banks’ loan books from publicly available sources, with breakdowns of lending by type, geography and sector;
• estimation of emissions intensity of a representative sample of banks’ counterparties, for example firms within the same sector and geography for corporate lending; and
• estimates of banks’ interest revenues associated with lending activities.

The model estimates emissions for all corporate lending, as well as residential and corporate real estate loans.^{footnote [40]} While the model provides a comprehensive overview, it may not account for granular policies, which banks might have in place. For example, to limit exposure to the highest carbon intensity counterparties.

The Scope 1 and 2 WACI for the combined STR, ILTR and TFSME portfolio^{footnote [41]} was 2.0 tCO₂/£mn revenue.^{footnote [42] footnote [43] footnote [44]} Scope 1 and 2 emissions represent an immaterial portion of firms emissions and are of limited utility when assessing exposure to climate-related financial risks.

The Scope 3 WACI for the combined STR, ILTR and TFSME portfolio was 768.8 tCO₂/£mn interest revenues (Chart 2.4).^{footnote [45]} This is an order of magnitude higher than Scope 1 and 2 WACI, which only captures banks operational emissions (eg offices).

The Scope 3 WACI is significantly lower than a sample of large, international banks. For example, the Scope 3 WACI for a global systemically important bank (G-SIB) G7 reference portfolio^{footnote [46]} would be 2,737 tCO₂/£mn interest revenues.^{footnote [47]} Differences in Scope 3 WACI reflect differences between the business model of those banks that the Bank lends to via the STR, ILTR and TFSME compared to the sample international bank’s portfolio. It does not reflect the nature of the collateral that this lending is secured against:

• Revenues (33% of difference): firms in the reference portfolio generate less interest revenue for a given quantity of emissions. This is particularly driven by the low interest rate environment in Japan and material weighting of Japanese banks in the reference portfolio.
• Geography (13% of difference): where firms in the G-SIB G7 reference portfolio lend to counterparties with the same characteristics, the location of those counterparties means those exposures are generally higher carbon intensity.
• Counterparty type (54% of difference): firms in the G-SIB G7 reference portfolio lend to counterparties with higher emissions. For example, they have higher weights of corporate lending than residential real estate, which is more carbon intensive.

An extension of this approach is used to quantify financial risks banks face (Chart 2.4). For example, the impact of a transition shock on residential mortgage probability of default (PD), and banks’ expected credit losses (ECLs), is estimated in line with the methodology described in Measuring climate-related financial risks using scenario analysis. For corporate loans, the Bank applies a structural credit risk model to estimate the impact of climate-related falls in the long-term value of a corporate’s assets into ECLs. While this approach may overstate the speed at which changes in the value of corporates’ assets would translate into elevated ECLs, it is valuable for exploring tail risks. Aggregate ECLs are translated into an estimated impact on CET1 ratios. CET1 ratios are widely used as a measure of firms’ resilience to shocks.

In a High Transition Risk scenario,^{footnote [48]} the weighted average CET1 ratio of the STR, ILTR and TFSME portfolio reduces by around -1.7 percentage points of risk-weighted assets (RWAs) (Chart 2.4). These reductions are smaller than the G-SIB G7 reference portfolio, which reduces by around -2.7 percentage points. All these numbers are desk-based, top-down estimates derived using a series of conservative assumptions, given our objective of quantifying tail financial risks to the Bank. They are of a similar order of magnitude to, but slightly larger than, the cumulative losses seen in the CBES. This reflects the additional conservatism of our approach, which pulls forward losses that may only accrue later. The numbers are also similar to results from scenario analysis exercises undertaken by other central banks and supervisors (eg European Central Bank and Bundesbank).

Overall, STR, ILTR and TFSME firms’ Scope 3 emissions intensity is much lower than a sample of large international banks due to lower exposures to the most intensive form of lending – corporate lending – and higher interest revenues. This feeds into financial risk metrics, where STR, ILTR and TFSME firms are less exposed to higher ECLs and reductions in their capital ratios compared to international peers. While these reductions in CET1 ratios are material, they are smaller than the reductions in CET1 ratios which firms see as part of the Bank’s regular stress tests (eg November 2024 Financial Stability Report). Moreover, the UK banking system would have enough capital to absorb such losses without breaching minimum capital requirements based on current levels of capital. Overall, this suggests the Bank is exposed to relatively limited climate-related credit and financial risks through the STR, ILTR and TFSME.

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. The Bank’s physical operations are exposed to both physical and transition risks.^{footnote [49]}

The Bank’s carbon footprint for physical operations

One way in which the Bank monitors its exposure to transition risks is by tracking its carbon footprint from physical operations.

This year the Bank’s carbon footprint is estimated to be 61,215 tCO₂e. The majority of emissions relate to goods and services purchased by the Bank (73%), capital goods purchased (10%), business travel (5%) and employee commuting (5%). It is estimated that emissions would rise by 5,482 tCO₂e if renewable electricity were not used in 2024/25, which would represent a 9% increase in the Bank’s physical operations carbon footprint.^{footnote [50] footnote [51]}

Table 2.B summarises the Bank’s reported carbon footprint from physical operations for the current year, the previous year and the 2015/16 baseline. As explained in the Bank’s climate-related financial disclosure 2024, data in previous years are not restated to reflect the methodological improvements incorporated in 2023/24. The same approach has been taken in 2024/25.

Comparison with prior year

The Bank’s estimated carbon footprint this year is 22% (17,704 tCO₂e) lower than 2023/24 (78,919 tCO₂e). This was mainly due to a fall in estimated emissions from purchased goods and services (12,192 tCO₂e) and capital goods (4,527 tCO₂e). The vast majority of these reductions were driven by methodological improvements rather than changes in the type and quantity of goods and services purchased (Chart 2.5). This is illustrative of the Bank’s commitment to update its methodologies and engage with its suppliers to improve its risk management and reporting each year.

Comparison with baseline year

The Bank’s estimated carbon footprint this year is 58% (83,162 tCO₂e) lower than the baseline year (144,377 tCO₂e). The methodological changes to improve the quality of the current year emissions estimates have driven a substantial proportion of the reduction in emissions from purchased goods and services (64,323 tCO₂e) and capital goods (10,182 tCO₂e). A further reduction of 5,563 tCO₂e is driven by abatement of emissions via the Bank’s move to renewable electricity.

The Bank’s carbon targets for physical operations

In 2022/23 the Bank published its first CTP, setting out its approach to reduce emissions from physical operations to net zero by 2040. The Bank expects to meet this target. The Bank continues to monitor its previous 2030 Target to reduce selected^{footnote [52]} GHG emissions by 63% from 2016 to 2030^{footnote [53]} and has incorporated it within the CTP transition pathway.^{footnote [54]} The Bank expects to meet the 2030 Target, due in large part to its move to renewable energy. Both targets align with the reduction in emissions needed to limit the rise in global average temperatures to 1.5°C above pre-industrial levels.