BCB Adds Sustainability Dimension to Its Agenda in September 2020
BCB added sustainability dimension to its agenda in September 2020. The new dimension aims to promote sustainable finance, management of socio-environmental and climatic risks in the national financial system, and integration of sustainable variables in the decision-making process. The key measures included in the sustainability dimension are related to supervision, regulation, partnerships, and socio-environmental responsibility. The BCB president also signed a memorandum of understanding with the Climate Bonds Initiative (CBI); the partnership aims to exchange information on the promotion of sustainable finance and management of socio-environmental and climatic risks in the financial sector.
The sustainability dimension of the Agenda involves the following key measures:
- Structuring and broadening of the scope for collecting information on socio-environmental risks. This involves creation of document to collect qualitative data on both socio-environmental responsibility and climate risk assessment carried out by financial institutions for selected operations. It also involves automation of crossing exposure data with public information related to socio-environmental risk.
- Monitoring of climate risks and stress tests. This involves inclusion of climate risk scenarios in new and improved stress tests performed by BCB, in line with international recommendations and best practices.
- Regulatory enhancement of Resolution No. 4.327/2014. This involves inclusion of the concept climate risk, improvement of the definition of socio-environmental risk, and inclusion of requirements applicable to all types of risk such as risk appetite statement, stress tests, and business continuity and governance plan.
- Better transparency based on Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Improvement of criteria for climate-related financial disclosures by financial institutions, focusing on the risks and opportunities related to climate-related issues, as well as studying specific aspect of TCFD recommendations that can be incorporated into the prudential regulatory framework of BCB.
- Creation of a "green liquidity facility." This involves a feasibility study, analysis, and subsequent implementation of new facilities for financial institutions, whose collaterals can be private credit operations or private securities.
- Management of international reserves. This covers inclusion of sustainability criteria for the selection of counterparties in the management of international reserves and for investment decisions.
- Joining of the Network for Greening the Financial System (NGFS). BCB joined NGFS to benefit from the exchange of experiences and best practices of central banks about socio-environmental issues, improvement in data analysis and mitigation of socio-environmental risks in the financial system, and strengthening of partnerships with other central banks and international organizations.
Related Links (in Portuguese)
Keywords: Americas, Brazil, Banking, ESG, Climate Change Risk, Climate Change Initiative, Climate Bonds Initiative, Stress Testing, NGFS, Sustainable Finance, Disclosures, TCFD, BCB
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
PRA Announces Update on Supervisory Benchmarking Portfolio ExerciseRelated Articles
HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
ECB Study Assesses Impact of Basel III Finalization Package
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
PRA Updates Remuneration Policy Statement Templates and Tables
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.
