Climate Risk Models Debate

Full Debate: Read Full Debate
Department: HM Treasury

Climate Risk Models

Baroness Altmann Excerpts
Thursday 25th January 2024

(9 months, 2 weeks ago)

Lords Chamber
Read Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
- View Speech - Hansard - - - Excerpts

As the noble Lord is aware, our financial regulators are of course independent of government. However, the Government are clear in their annual letters to the various regulators that climate risk is a key part of all the elements they must consider when considering financial stability in the UK and, indeed, globally.

Baroness Altmann Portrait Baroness Altmann (Con)
- View Speech - Hansard - -

My Lords, the climate models currently used by the Bank of England and pension schemes have been shown by the Institute and Faculty of Actuaries, the Pensions Regulator, and even the coalition of central banks that developed them, to be deeply flawed, yet the Bank of England remains publicly committed to them. What are Ministers doing urgently to learn from academic and climate science, and to make recommendations to the Bank under Section 30B of the Bank of England Act to help it improve the financial modelling of climate risk? Also, what is my noble friend’s department doing to ensure that pension schemes invest more in our solar farms and wind farms, particularly, for example, via investment trust portfolios?

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
- View Speech - Hansard - - - Excerpts

Goodness—that is a very wide-ranging question from my noble friend. I do not think it quite right to say that the Bank of England is committed to the scenarios it used back in 2021. For example, as my noble friend will have seen, two more scenarios were published fairly recently. The Government are not, for example, going to mandate a particular model or scenario for the pensions industry or indeed any part of it, because there are different scenarios out there. They are not forecasts but scenarios, and different groups will feel that different scenarios will come into play. Most pension schemes now have to follow the TCFD requirements, which came into force substantially in October 2022. That will really focus the pension schemes on their climate risks but also the climate opportunities.