U.K. banks and insurers will have to show how they plan to respond to the harmful effects of climate change under new stress tests, as the Bank of England becomes the world’s first central bank to require such examinations.

The Bank of England last week said it wants to test the performance and health of the U.K.’s financial system for a range of climate-related risks, such as the failure of governments and consumers to take mitigating actions. Other scenarios would include preventative measures and taking actions later. The climate tests would be in addition to the financial ones that banks and insurers already undergo.

“Climate change will affect the value of virtually every financial asset,” Mark Carney, the Bank of England’s governor, said in a statement. The central bank “will help ensure the core of our financial system is resilient to those changes.”

The Bank of England said it is still designing the stress tests and is seeking feedback from companies, climate scientists, economists and other experts through March 18. The first results of the stress tests would be published in the second half of 2021 as part of the Bank of England’s normal annual tests. 

The action reaffirms the U.K. position at the forefront of the fight against harming the environment, as insurers and financial institutions worldwide face increasing scrutiny over how they add to climate change. 

For instance, BNP Paribas, facing heavy criticism as one of the leading Western financiers of coal expansion, said last month it would cease all financing of the sector worldwide by 2040.

Carney and billionaire and former New York mayor Mike Bloomberg have championed a climate change initiative that seeks to get banks worldwide to calculate the risks posed to their businesses by global warming. They have said the Task Force on Climate-related Financial Disclosures (TCFD) would help environmental impact investors allocate their funds.

The TCFD, which was launched in 2015 by the U.K.’s Financial Stability Board, is supported by 76 banks representing 40%, or $59 trillion, of total global banking assets, according to an October report.

  • The bank’s announcement came days after this year’s United Nations climate talks ended in disappointment, with a weak statement calling for greater efforts to tackle greenhouse emissions.
  • Earlier the year, the British Parliament approved a net zero fossil fuel pollution goal by 2050, becoming the first major economy to pass a law requiring it end its contribution to climate change.