Featured Product

    BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks

    April 17, 2023

    The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks. Additionally, the BIS Innovation Hub announced Project Gaia, which aims to help meet the existing climate risk data gaps and to help analysts search for corporate climate-related disclosures quickly and efficiently.

    The FSI paper discusses the challenges associated with designing and implementing macro-prudential policies to address the system-wide effects of climate-related financial risks, with a focus on measures that target banks’ underwriting practices with a view to containing the accumulation of systemic risks over time. The paper first reviews the core features of macro-prudential policies, including definitions, objectives, and potential tools. It then discusses the challenges and trade-offs that stem from the unique features of the climate-related financial risks that have a bearing on the design, implementation, and effectiveness of the macro-prudential policies for addressing such risks. Finally, the paper discusses policy options and the complexity associated with their implementation, before concluding that implementing such a macro-prudential policy for climate-related financial risks, which could helpfully complement an adequately adjusted micro-prudential framework, will not be an easy task. This is because such a framework would be based on the existence of sufficiently clear and granular data and taxonomies that would allow banks and supervisors to determine the scope of application of this instrument. While meeting such complex requirements is likely to be challenging, at least at this stage, failure to adjust the scope of application of macroprudential policies for addressing climate-related financial risks might render such macro-prudential policies ineffective and potentially counterproductive for financial stability..

    The Project Gaia will establish an open, web-based tool to facilitate climate and environmental risk assessments based on a large corpus of publicly available corporate reports. Along with the Eurosystem project partners, the Bank of Spain, the Deutsche Bundesbank, and the European Central Bank are involved in this project. Besides classical machine learning approaches, Project Gaia will explore how large language models (such as GPT) might be integrated into a reliable workflow for fact-finding. Project Gaia will explore the possibilities of standardizing different globally recognized Environmental, social, and governance (ESG) disclosures as well as the potential of using natural language processing, including the use of large language models to extract and structure climate-related data. These state-of-the-art tools will make unstructured data more usable, facilitating climate risk assessments. The first project output will be a repository of textual corporate reports, coupled with a full-text and semantic search engine to identify specific sustainability-related disclosures. In the second stage, the project will build a graphical user interface (GUI) to access the company-level climate-related database. The GUI will include data visualization tools to facilitate climate and environmental risk assessments. Project Gaia will explore the possibilities of standardizing different globally recognized ESG disclosures, using the publicly available company reports as its core sources of information. The prototype will consist of a data-agnostic model that meets the needs of the central banking community. It will feature the required flexibility and open access to the data as well as the underlying algorithms.

     

    Related Links


    Keywords: International, Banking, ESG, Climate Change Risk, Project Gaia, Disclosures, BIS Innovation Hub, Reporting, Macro-Prudential Policy, FSI, BIS

    Featured Experts
    Related Articles
    News

    BCBS Consults on Guidelines for Counterparty Credit Risk Management

    The Basel Committee on Banking Supervision (BCBS) is seeking comments, until August 28, 2024, on guidelines for counterparty credit risk management of banks.

    May 21, 2024 WebPage Regulatory News
    News

    ISSB Releases Digital Sustainability Disclosures Taxonomy

    The themes of the harmonization and interoperability of sustainability disclosure standards among various jurisdictions remain at the top-of-mind for international standard-setting bodies.

    May 21, 2024 WebPage Regulatory News
    News

    BCBS Report Studies Implications of Digitalization of Finance

    The Basel Committee on Banking Supervision (BCBS) published a report that examines the implications of the digitalization of finance for banks and supervisors.

    May 21, 2024 WebPage Regulatory News
    News

    HKMA Publishes Hong Kong Taxonomy for Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance.

    May 21, 2024 WebPage Regulatory News
    News

    EU Taking Steps to Set Out and Enforce AI Regulations

    Many believe that the transformative power of generative artificial intelligence (GenAI) has potential to reshape the financial sector in the time to come.

    May 21, 2024 WebPage Regulatory News
    News

    BIS Paper Outlines Vision for Future Financial System

    In a recent paper, the General Manager of Bank for International Settlements (BIS) and the Indian entrepreneur (Infosys co-founder) Nandan Nilekani have laid out a vision for the Finternet, which is proposed to be a network of multiple financial ecosystems, much like the internet.

    April 29, 2024 WebPage Regulatory News
    News

    NGFS Outlines Options for Supervisory Review of Transition Plans

    The Network for Greening the Financial System (NGFS) recently published three reports on the use of transition plans to boost sustainable finance and manage climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    BCBS Issues Discussion Paper on Climate Scenario Analysis

    The Basel Committee on Banking Supervision (BCBS) issued a discussion paper on the use of climate scenario analysis to strengthen the management and supervision of climate-related financial risks.

    April 29, 2024 WebPage Regulatory News
    News

    OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.

    April 25, 2024 WebPage Regulatory News
    News

    CFIT to Chair Open Finance Taskforce Announced by UK Government

    The UK government announced the formation of an industry-led Open Finance Taskforce, chaired by the Center for Finance, Innovation, and Technology (CFIT).

    April 25, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8967