Firms’ solvency in face of potential climate shocks positive but risks remain

Jon Williams, Global Banking & Capital Markets ESG Leader and UK Chair, Sustainability & Climate Change at PwC UK, said:

“Today's Climate Biennial Exploratory Scenario  (CBES) results demonstrate the very real impact climate risk can have on firms' profits - a 10-15% average drag, which should sharpen their focus on this issue, and on the need for early engagement and action.

“The Prudential Regulation Authority’s (PRA) CBES test was one of the first financial system stress tests and as such is pioneering. It is also recognised that as climate scenarios, stress testing models and data all improve, the results may well show greater potential impacts. This is particularly likely in the mid to long term as the climate continues to change and firms do not take the necessary action to mitigate this change.

“The role of corporate disclosure on climate-related impacts, including financial disclosure, is key to us gaining a better understanding of how future climate scenarios may affect company performance. 

“The recommendations of the Task Force of Climate-related Disclosure (TCFD), and the ongoing work of the UK Transition Plan Taskforce and the Glasgow Financial Alliance for Net Zero, remain as relevant as ever in this regard.

“It is clear that the comparative lack of impact on firms' solvency is in part testament to the robust prudential regimes enacted over the last 15 years in the UK, but the additional risk, and increased vulnerability to other shocks, should not make firms complacent.”

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