DNB launched a consultation on the good practices for integration of climate-related risk considerations into risk management of banks. The consultation, which ends on January 17, 2020, seeks views on whether the practices are sufficiently clear and whether they provide banks with practical guidance for further integration of climate-related risks into their governance, risk management, and disclosures. The document also includes a set of questions and answers on the DNB interpretation of current regulations in relation to the treatment of climate-related risks. The final version of the good practices will be published in the first quarter of 2020.
The document first demonstrates how climate change can be a driver of conventional risk types, such as credit, market, and operational risks. It then explains the applicable legislation and regulations. Incorporation of climate risks in the risk management of banks is in line with the Capital Requirements Directive (CRD) IV. Article 74 of CRD IV stipulates that banks must have in place robust governance arrangements, including effective processes to identify, manage, monitor, and report the risks to which they are or might be exposed to. Given the potential impact of climate-related risks on banks' balance sheets, DNB expects banks to take climate-related risks into account in their risk management. They could do this by, among others, identifying the impact of these risks on their overall risk profile.
The proposed good practices provide non-binding guidance on how banks can organize their processes, procedures, and policies to manage the climate-related risks of their activities. This non-binding guidance is based on observed or envisaged practices that reflect an appropriate application of the applicable legislation and regulation to which this good practice document pertains. By adopting the good practices in a manner proportionate to their nature and scale, banks will become more resilient to the financial risks from climate change. These good practices are based on principal findings from the DNB analysis of the climate risk self-assessments submitted by Dutch less significant institutions and other market observations made through the work of DNB in this area.
Comment Due Date: January 17, 2020
Keywords: Europe, Netherlands, Banking, CRD IV, Operational Risk, Market Risk, Climate Related Risks, Credit Risk, Guidance, ESG, Sustainable Finance, Disclosures, DNB
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