BCB Consults on Rules for Management of ESG Risks by Banks
BCB proposed rules for the management of social, environmental, and climate risks by financial institutions, with the comment period ending on June 05, 2021. The proposal covers the inclusion of perspective related to climate change in the Brazilian regulatory framework, both under the risk management aspect as well as the liability policy. The proposed rules are expected to enter into force on January 01, 2022.
In addition to improving the definitions of social, environmental, physical, and climate-related transition risks, the proposal moves toward strengthening the integration of these risks to the management of other traditional risks (such as credit, market, liquidity and operational risks). The proposal covers minimum criteria for the identification, measurement, evaluation, monitoring, reporting, control, and mitigation of the adverse effects of the interactions between these risks. The proposal also focuses on requiring the inclusion of social, environmental, and climate risks in the Risk Appetite Statement (RAS), in the management of business continuity, in the risk governance structure. and in the stress testing framework. The proposal covers the explicit need for more complex institutions to carry out scenario analysis, considering the hypotheses of climate change and transition to a low-carbon economy. Among the requirements of the proposal is the need to implement actions with a view to ensure the effectiveness of Social, Environmental, and Climate Responsibility Policy (PRSAC) and the maintenance of an adequate governance structure. Disclosure of PRSAC to the external public is also required with respect to the actions implemented and the criteria for evaluating the effectiveness of these actions.
Related Links (in Portuguese)
Comment Due Date: June 05, 2021
Keywords: Americas, Brazil, Banking, ESG, Climate Change Risk, Basel, Credit Risk, Liquidity Risk, Operational Risk, Stress Testing, Disclosures, BCB
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