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    BDE Publishes Supervisory Expectations to Address Climate Risks

    October 23, 2020

    BDE has published supervisory expectations explaining the way institutions should take into account the risks derived from climate change and environmental deterioration in the business model and strategy, governance, risk management, and disclosure of information to third parties. BDE also published the financial stability report, summarizing the key risks to financial stability in the current environment in Spain. These risks include risks to economic recovery, financial weakness of certain segments of households and firms, low profitability of banks, potential deterioration in solvency, and growing public debt.

    BDE specified the following key supervisory expectations to take into account risks derived from climate change and environmental deterioration:

    • BDE expects entities to incorporate into their strategy, business model, and risk appetite framework the risks derived from climate change and environmental deterioration that they consider to be material not only in the short term, but also in the long term. 
    • BDE expects that the board of directors of the entities will be ultimately responsible for integrating the risks derived from climate change and environmental deterioration into the general strategy according to their materiality and for establishing the necessary mechanisms for their review. It also expects the board to incorporate these risks appropriately into the organization of the entity. 
    • BDE expects entities to consider the risks derived from climate change and environmental deterioration in an integrated manner in their current risk management procedures and to adopt a global approach for their identification, evaluation, monitoring, and mitigation. 
    • BDE expects entities to progressively explore and deepen the use of scenario analysis and stress exercises, in accordance with their own characteristics, capacities, and specificities and in an evolutionary way. BDE expects entities, within their scope of action, to make an effort to improve the availability and quality of existing data in relation to risks derived from climate change and environmental deterioration. 

     

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    Keywords: Europe, Spain, Banking, Financial Stability Report, COVID-19, Systemic Risk, Climate Change Risk, ESG, BDE

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