Featured Product

    BoE Governor on Integrating Climate Risks into Financial Decisions

    September 24, 2019

    BoE published two speeches by Governor Mark Carney, wherein he called for a step change to bring the financial disclosure, risk management, and return optimization of sustainable finance into mainstream financial decision-making. While speaking at the UN Climate Action Summit 2019 in New York, he emphasized that banks, insurers, asset managers, and those who supervise them—all need to improve their understanding and management of climate-related financial risks. While speaking at another event in New York, he also outlined the role of insurance in smoothing the transition to a 1.5-degree world.

    Mr. Carney opined that the next step is to make the climate-related financial disclosures mandatory, highlighting that the UK and EU have already signaled their intents in this regard. Over the next two years, the current process of disclosure by the users of capital, reaction by the suppliers of capital, and adjustment of these standards will be critical to ensure that the Task Force on Climate-related Financial Disclosures (TCFD) standards are as comparable, as efficient, and as decision-useful as possible. With respect to risk management, he said that the providers of capital—banks, insurers, asset managers, and those who supervise them—all need to improve their understanding and management of climate-related financial risks. 

    To develop the essential climate risk management skills and techniques, BoE has just set out its supervisory expectations for the governance, management, and disclosure of these risks by banks and insurers. He also highlighted that BoE will be the first regulator to stress test its financial system against different climate pathways, including the catastrophic business as usual scenario and the ideal—but still challenging—transition to net zero by 2050 consistent with the legislated objective of the UK. This test will mainstream cutting-edge risk management techniques. He added that, similar to the climate-related disclosures, this new risk management needs to go global. This is why BoE is developing its stress testing approach in consultation with industry, the credit rating agencies, and the Network for Greening the Financial System (which is a group of 42 central banks and supervisors representing half of global emissions).

    For sustainable investment to go truly mainstream, one of the biggest hurdles is the inconsistent measurement of environmental, social, and governance (ESG) factors. A common taxonomy is needed to help financial markets rigorously identify environmental out-performance and to direct investment accordingly. He said: "The EU’s Green Taxonomy and the Green Bond Standard are good starts, but they are binary (dark green or brown). Mainstreaming sustainable investing will require a richer taxonomy—50 shades of green. One promising option, highlighted in this week’s initiative of UN’s Climate Financial Leaders, is the development of transition indices composed of corporations in high-carbon sectors that have adopted low-carbon strategies."

    The BoE Governor concluded that the speed with which the new sustainable finance develops will be decided by the coherence and credibility of climate policies of countries. Finance will complement—and potentially amplify these initiatives—but it will never substitute for climate policy action. The policy frameworks with the greatest impact will be time consistent; transparent; target-based; and committed, through treaties, nationally determined contributions, domestic legislation, and consensus. The more prolific the reporting, the more robust the risk management, and the more widespread the return optimization, the more rapidly the sector can build resilience.

     

    Related Link: Speeches

     

    Keywords: International, Europe, UK, Banking, Insurance, Securities, Sustainable Finance, TCFD, Stress Testing, Climate Change Risks, Disclosures, ESG

    Featured Experts
    Related Articles
    News

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA

    October 08, 2021 WebPage Regulatory News
    News

    CFPB Proposes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.

    October 08, 2021 WebPage Regulatory News
    News

    PRA Decides to Maintain O-SII Buffers for Another Year

    The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.

    October 08, 2021 WebPage Regulatory News
    News

    FSB Report Assesses Implementation of Recommendations on Stablecoins

    The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.

    October 07, 2021 WebPage Regulatory News
    News

    APRA Updates Loan Serviceability Expectations for Home Lending

    In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.

    October 06, 2021 WebPage Regulatory News
    News

    CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.

    October 06, 2021 WebPage Regulatory News
    News

    EBA and EIOPA Set Out Work Priorities for 2022

    The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.

    October 05, 2021 WebPage Regulatory News
    News

    MFSA Issues Reporting Updates and Guidance for Banks

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.

    October 05, 2021 WebPage Regulatory News
    News

    EC Publishes Decision on List of Equivalent Third Countries Under CRR

    The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).

    October 04, 2021 WebPage Regulatory News
    News

    EC Rule on Contractual Recognition of Write-Down and Conversion Powers

    EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.

    October 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7552