Featured Product

    HKMA Indicates Its Supervisory Approach to Addressing Climate Risks

    June 30, 2020

    In a recent circular, HKMA announced the publication of a white paper that presents initial thinking of HKMA about its supervisory approach to addressing climate-related issues and, to a lesser extent, broader sustainability issues. The paper presents possible actions that authorized institutions may take to address climate-related issues, including guiding principles and recommendations in the areas of governance, strategy, risk management, and disclosure. These guiding principles are designed to help authorized institutions develop a governance framework and strategy for managing the risk and opportunities brought by climate change and to provide guidance on accounting for climate considerations in their risk management framework and the formulation of an approach in climate-related information disclosure.

    The paper first describes sustainability issues such as climate change and discusses how climate-related risks can be transmitted to the banking sector, how banks in Hong Kong may be affected, and how climate change brings opportunities to banks. It then describes the regulatory development and its three-phased approach of HKMA to promoting green and sustainable banking in Hong Kong. Finally, the paper presents the initial thoughts of HKMA on supervisory expectations and requirements. HKMA hopes that the white paper can enable authorized institutions to have a grasp of the issue and help shape a greener, better, and more climate-resilient banking system. HKMA appreciates further discussion with the banking industry about the thinking presented in the white paper, before proceeding with a formal consultation of the supervisory requirements. The initial thoughts of HKMA on the supervisory expectations of authorized institutions have been summarized in the following nine guiding principles:

    • The board has primary responsibility for an authorized institutions' climate resilience. It should have sufficient understanding of the climate-related issues in determining the authorized institutions approach to address them.
    • The board should exercise oversight of the development and implementation of the authorized institutions climate strategy, including embedding climate-related risks into the authorized institutions risk appetite framework
    • Climate considerations should be embedded throughout the strategy formulation process, from strategic assessment to action plan development.
    • Organizational structures, business policies, processes, and resource availability should be reviewed and enhanced to ensure effective integration of climate strategy into the operation and corporate development of an authorized institutions.
    • Authorized institutions should identify the transmission channels and assess the impacts of physical and transition risks arising from climate change on their business. Concrete plans should be devised to address any information and data gaps.
    • Authorized institutions should build capability over time to measure climate-related risks using various methodologies and tools, among which scenario analysis should be actively explored.
    • Authorized institutions should implement processes to monitor and report exposures to climate-related risks to ensure that such exposures are consistent with their risk appetite and that timely and regular updates are provided to the board and senior management.
    • Authorized institutions should carry out measures to control and mitigate exposures to climate-related risks to ensure effective management of these risks.
    • Authorized institutions should develop an appropriate approach to disclosing climate related information to enhance transparency. When considering the information to be disclosed, authorized institutions should take  recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) as the core reference.

    HKMA recognizes that there is a wide spectrum among authorized institutions in terms of size, nature of business, complexity of operations and stage of development in their capability in addressing climate-related issues. As such, HKMA expects that these principles will be applied to authorized institutions' on a proportionate basis, and will initially focus on larger authorized institutions' which have a greater impact on the Hong Kong economy and the financial system as a whole.

     

    Keywords: Asia Pacific, Hong Kong, Banking, Climate Change Risk, ESG, Disclosures, Sustainable Finance, Reporting, Stress Testing, Governance, HKMA

    Featured Experts
    Related Articles
    News

    BIS Paper Studies Impact of Fintech Lending on Small Businesses in US

    The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.

    September 26, 2022 WebPage Regulatory News
    News

    UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks

    The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).

    September 26, 2022 WebPage Regulatory News
    News

    EBA Launches EU-Wide Transparency Exercise in 2022

    The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.

    September 23, 2022 WebPage Regulatory News
    News

    SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks

    The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."

    September 22, 2022 WebPage Regulatory News
    News

    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.

    September 21, 2022 WebPage Regulatory News
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8521