Featured Product

    NGFS Advocates Environmental Risk Analysis for Financial Sector

    September 10, 2020

    NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies. These papers provide important references to the tools and methodologies used by financial institutions for measuring exposure to environmental risks and for assessing the financial implications of these risks in a forward-looking manner, including via stress testing and scenario analysis. Both the publications conclude that, to effectively address climate-related and environmental risks, greater collective efforts are urgently needed from regulators, financial institutions, international organizations, third-party vendors, and academic institutions to promote wider adoption of environmental risks analysis in the financial industry.

    The overview of environmental risk analysis by financial institutions provides wide-ranging examples of how environmental risks translate into financial risks, along with an in-depth review of the tools and methodologies for environmental risk analysis used by financial institutions, including banks, asset managers, and insurance companies. It also identifies the major barriers to wider adoption of environmental risk analysis by the financial services industry, including the lack of awareness of environmental risks, inadequate data, incomplete methodologies, and limited capacity. The overview outlines six opportunities for mainstreaming environmental risk analysis within the financial sector:

    • Enhancing environmental risk analysis awareness—Central banks and financial supervisors should strive to enhance environmental risk analysis awareness among financial institutions by conducting environmental risk analysis and clarifying expectations or standards for financial institutions to implement environmental risk analysis.
    • Capacity building—Industry associations, central banks and supervisors, international organizations, nongovernmental organizations, and academic institutions could organize seminars and training activities on environmental risk analysis methodologies, with some results delivered as public goods to the financial industry.
    • Supporting demonstration projects—NGFS, international organizations, central banks, and supervisors should consider supporting environmental risk analysis projects in key sectors, such as banking, insurance and asset management, and in key regions exposed to substantial environmental and climate-related risks.
    • Disclosing risk exposure and results of environmental risk analysis—A robust and internationally consistent climate and environmental disclosure framework is needed. For countries with more developed environmental risk analysis tools and capacity, central banks and supervisors could encourage financial institutions to disclose their exposures to environmental and climate risks as well as the results of their environmental risk analysis in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
    • Developing Key Risk Indicator and statistics—NGFS and relevant international organizations could conduct research while encouraging other market bodies and academic institutions to develop a Key Risk Indicator that facilitates the identification, measurement, and data comparability of environment and climate-related risks.
    • Developing a taxonomy of economic activities—NGFS calls on policymakers to bring together the relevant stakeholders and experts to develop and adopt green and brown taxonomies that enhance the transparency around the environment, social, and governance characteristics of the economic activities.

    The occasional paper contains a more detailed and in-depth discussion of the tools and methodologies for environmental risk analysis through case studies of more than 30 organizations. The occasional paper aims to inform the financial community of the environmental risk analysis methodologies and inspire interested institutions to further develop and enhance these methodologies. The paper presents a taxonomy of environmental risks, explains how these risks may translate into credit, market, underwriting, and operational risks for financial institutions. The paper also discusses the major gaps between research and application of the environmental risk analysis tools and presents a number of recommendations for stakeholders on ways to promote environmental risk analysis in the financial industry. 

     

    Related Links

    Keywords: International, Banking, Insurance, Securities, ESG, Climate Change Risk, Taxonomy, Stress Testing, Environmental Risk Analysis, Credit Risk, Basel, NGFS

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    HKMA Announces Launch of Data Repository on Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    NGFS Report on Integration of G-Cubed Model into NGFS Scenarios

    The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8301