NGFS Publishes Recommendations to Better Manage Environmental Risks
CMF announced the publication of two documents prepared by the Network for Greening the Financial System (NGFS) on better management of climate-related and environmental risks. One of the documents is a guide for supervisors that sets out five recommendations on action to be taken by the NGFS members as well as the broader community of banking and insurance supervisors to integrate climate-related and environmental risks into their work. The second document is status report on the experiences of financial institutions on working with green, non-green, and brown financial assets and a potential risk differential; this document also offers an overview of industry definitions and practices on quantification and mitigation of environmental risks.
Guide for Supervisors. The content of the guide is based on input received from NGFS members and work done by supervisors outside the network. The outcomes clearly show that worldwide supervisors are taking action. The practices showcased in the guide aim to further inspire supervisors and help them accelerate their efforts. The guide sets out the following recommendations for supervisors:
- Determine how climate-related and environmental risks transmit to the economies and financial sectors in their jurisdictions and identify how these risks are likely to be material for the supervised entities
- Develop a clear strategy, establish an internal organisation, and allocate adequate resources to address climate-related and environmental risks
- Identify the exposures of supervised entities that are vulnerable to climate-related and environmental risks and assess the potential losses should these risks materialize
- Set supervisory expectations to create transparency for financial institutions in relation to the supervisors’ understanding of a prudent approach to climate-related and environmental risks
- Ensure adequate management of climate-related and environmental risks by financial institutions and take mitigating action where appropriate
NGFS Status Report. This report highlights the main findings of a survey conducted by the NGFS among 49 banks and five insurance companies around the globe. The survey was intended to understand how financial institutions kept track of the specific risk profiles of green, non-green, and brown financial assets; developed specific risk metrics; and analyzed potential risk differentials. Although not conclusive on the existence of a risk differential, the report shows positive trends among financial institutions to better account for climate related risks of their assets and suggests encouraging ways forward in the analysis via forward-looking methodologies. The report recalls the impossibility for a complete assessment without harmonized green and brown taxonomies.
Looking ahead, two other documents dedicated to climate scenario-analysis will be published by the NGFS shortly. NGFS will also start working on the data and metrics needs for the assessment of climate and environmental risks and investigate the possible access limitations. Additionally, NGFS announced that twelve new members have joined the Network since the beginning of 2020. These are Central Bank of Brasil, Central Bank of Armenia, Central Bank of Cyprus, Central Bank of Georgia, Central Bank of West African States, Danish Financial Supervisory Authority, Bank of Estonia (Eesti Pank), Financial Market Authority Austria, Bank of Latvia (Latvijas Banka), Bank of Lithuania (Lietuvos Bancas), Malta Financial Services Authority, and National Bank of Cambodia. CMF is involved in the micro-prudential oversight work of the NGFS and has formed a Climate Change Working Group that is developing supporting documents for the Board of the Commission. The issues being addressed include climate risk monitoring, climate risk information dissemination, and the development of a green financial market. CMF also participates as a technical advisory body to the Green Finance Bureau of the Ministry of Finance.
Related Link (in Spanish): Press Release
Keywords: International, Banking, Insurance, Securities, Climate Change Risk, ESG, Sustainable Finance, Green Assets, NGFS, CMF
Related Articles
APRA Issues Interim Update to Policy Priorities for 2021 and Beyond
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
EC Adopts Solvency II and Resolution Rules Package for Insurers
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
OCC Issues Booklets on Regulatory Reporting and Earnings
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
ECB Sets Out Results of Economy-Wide Climate Stress Tests
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
EBA Examines Implications of Increasing Use of Digital Platforms in EU
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS Quarterly Review Discusses Developments in Fintech and ESG Space
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
BCBS to Consult on Supervisory Practices for Climate Risks by Year-End
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
OCC Identifies Operational Risk Deficiencies in MUFG Union Bank
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
