Featured Product

    DNB Finalizes Good Practices on Integration of Climate Risks for Banks

    April 01, 2020

    DNB published good practices and questions and answers (Q&A) for integrating climate-related risks into the governance, risk management, and reporting of banks. In the Q&A, DNB offers an interpretation of how the existing legislation, including the Capital Requirements Directive (CRD) IV, applies to climate-related risk management. DNB also published a feedback statement on the responses received during the consultation process for the good practices and Q&A. The good practice and Q&A are in line with European developments in this area. ECB, too, will consult the sector on climate-related risks and expects to present its supervisory expectations for this later in the year. In addition, EBA has been mandated to investigate how environmental, social, and governance, also known as ESG, risks can be included as part of the Supervisory Review and Evaluation Process or SREP.

    The document contains some of the good practices observed by DNB and demonstrates how climate change can be a driver of conventional risk types such as credit, market, and operational risk. It then sets out the applicable legislation and regulations, before finally presenting the good practices that are in line with sound governance, risk management and disclosure of climate-related risks. Banks should incorporate climate-related risks into their governance and risk management arrangements in line with the principle of proportionality. The good practices revolve around the following three thematic areas that represent the core elements of how banks operate: 

    • Governance. As good practices, DNB includes an organization-wide strategic approach toward climate-related risks, along with the integration of climate-related considerations in policy framework.
    • Risk Management. Banks’ existing risk management frameworks are an appropriate starting point to assess financial risks arising from climate change. The good practices are structured around four inherent functions of the risk management framework of a bank—namely, risk identification, risk assessment, risk mitigation, and risk monitoring. For risk identification, the included good practices involve development of a climate-related risk heat map to identify potential risk concentrations and the use of climate scenario analyses to inform strategic decision-making. For risk assessment, the use of stress-testing to assess the materiality of climate-related risks and the methodology to assess the relation between carbon footprint and climate-related risks has been suggested. For risk mitigation, the DNB good practices include implementation of concrete climate-related risk mitigation measures and mitigation of physical risk affecting own operations of a bank. Finally, the good practices outlined for risk management are the integration of climate-related risk indicators in risk appetite statement and the integration of climate-related risk assessment in due diligence process.
    • Disclosures. One good practice in this area would be disclosure of carbon footprint of lending and investment portfolio in annual report. Keeping in mind the existing data gaps in climate risk assessment, another outlined area of good practice is active client engagement to bridge existing data gaps. As an example, the good practices document points out that, to increase data availability, a bank has implemented a policy to promote active engagement with its clients to bridge any existing climate-related information gaps and, thus, increase its ability to identify and manage any climate-related risk concentrations to which it is exposed.

     

    Related Links 

    Keywords: Europe, Netherlands, Banking, Climate Change Risk, Good Practices, Q&A, Governance, Disclosure, ESG, CRD IV, SREP, DNB

    Featured Experts
    Related Articles
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    BoE Announces Changes to Validation Rules for Form BTL

    The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.

    July 20, 2021 WebPage Regulatory News
    News

    BCBS Proposes Changes to Process for Reviewing G-SIB Methodology

    The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.

    July 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7281