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* Bailey: might never be a case for climate capital rules
* More research needed on climate role in policy decisions
* BoE launches climate stress tests of banks this month
* Bailey sees range of economic outcomes from net-zero push
(Adds detail from Q&A, speech)
By William Schomberg and David Milliken
LONDON, June 1 (Reuters) - Bank of England Governor Andrew
Bailey said on Tuesday there was no case yet for making
financial institutions set aside more capital for climate change
risks, even though markets were underpricing the danger of
disruption.
Central banks around the world are increasingly focused on
the costs of climate upheaval as they try to steer a path for
their economies and the financial systems through the transition
to net-zero carbon emissions as well as extreme weather events.
This month the BoE launches its first environmental 'stress
test' of how banks and insurers are exposed to risks such as
greater flooding or large shifts in energy production.
But Bailey told the Reuters Responsible Business 2021
conference it would be a big step for the BoE to link the amount
of capital banks and insurers must hold to the environmental
profile of their investments, a demand of climate activists.
"Any incorporation of climate change into regulatory capital
requirements would need to be grounded in robust data and be
designed to support safety and soundness while avoiding
unintended consequences," he said in his speech.
"In my view, the case for this has yet to be clearly
established and possibly may never be."
"I'm against setting either capital requirements or capital
incentives ... for reasons that are not directly linked to our
objectives," he added in a question and answer session.
However, Bailey also noted that ongoing research by the BoE
might open the door to a greater focus on climate risks and
change how central banks set policy.
"A disorderly transition, where more severe policies are
introduced later in the horizon to compensate, could result in
both lower growth and higher inflation from rising energy and
materials costs in the economy," he said.
CHALLENGE OF 2050
Market prices of most financial assets do not yet reflect
the challenge of the 2050 net zero target, Bailey said.
But multi-trillion-dollar investments to transform the way
factories work, how homes and businesses are heated and how food
is grown could boost growth and jobs, especially in countries
such as Britain which is a net importer of energy, he said.
Earlier this year, British finance minister Rishi Sunak
changed the BoE's policy mandate to require it to support a
government commitment to meet the 2050 target.
In response, the BoE said it would tweak how it invests its
20 billion pounds ($28 billion) of corporate bond holdings
though it does not plan any abrupt divestment.
Climate activists in Britain have staged protests outside
the central bank, accusing it of aiding polluting companies with
its credit programmes, and the offices of HSBC and Barclays in
London have been damaged during demonstrations.
The U.S. Federal Reserve said in March it was establishing a
panel focused on financial stability risks and looking into the
possibility of climate stress tests for banks.
Britain is due to host a summit of world leaders in November
which will try to take more steps towards the net zero goal and
build on the 2015 Paris Accord to limit climate change.
Bailey said he hoped for international progress on deciding
which financial assets and activities are climate friendly or
not and on better climate risk disclosure by companies.
($1 = 0.7062 pound)
For more on the Reuters Responsible Business 2021 conference
please click here https://reutersevents.com/events/rbs/register-premium.php/
(Additional reporting by Andy Bruce; Writing by David Milliken;
Editing by William Schomberg and Alexander Smith)
