Last checked at 
(Adds more detail, graphic)
By Huw Jones
LONDON, May 18 (Reuters) - Banks and insurers are
underestimating the potential impact of climate change on their
business and should quantify risks from targeting 'net zero'
carbon emissions by 2050, Bank of England executive director
Sarah Breeden said on Tuesday.
Banks and insurers hold assets such as stocks and bonds for
companies that face "physical" risks like fires and floods due
to climate change, as well as being exposed to costs of
transition to a low-carbon economy.
"It is critical that financial firms recognise now that the
race to net zero has started," Breeden said in a speech.
"In support of their ambitions, and consistent with our
expectations, they need to run climate scenarios as part of
business as usual risk management and embed climate risk
management within day-to-day decision-making."
Green swans or sudden market shifts due to climate change
were likely until the management of risks greatly improves, she
said.
Climate activists have protested against HSBC and Barclays,
urging them to stop financing investments in fossil fuels.
"I don't think immediate divestment is part of an
economy-wide solution," Breeden said, adding that scenario
analysis would help banks better spot companies that are
becoming greener over time and those that are not getting the
message.
The Network for Greening the Financial System (NGFS), a
grouping of central banks, has compiled scenarios for banks to
use and compare results, she said.
Breeden said the price of carbon should be as fundamental to
investment decisions as interest rates.
Concerns, however, have been raised that Britain's new
carbon market following Brexit could be volatile, making it
harder to rely on.
The BoE will launch its first climate-related stress test of
banks and insurers in June to assess business model changes, but
it won't translate the outcome into any capital changes.
The main incentive for the economy to adapt to climate
change was government policy rather than "back-seat driving"
like imposing punitive capital charges or granting capital
relief, Breeden said.
(Reporting by Huw Jones, editing by Louise Heavens and Gabriela
Baczynska)
