BCBS Takes Stock of Initiatives on Climate-Related Financial Risks
BCBS published a report that takes stock of the regulatory and supervisory initiatives of members in the area of climate-related financial risks. The report was prepared by the Basel Committee's high-level Task Force on Climate-Related Financial Risks. The report highlights that most members are undertaking work on the measurement of climate-related financial risks, though the specific types of initiatives and the level of advancement in this area varies across member institutions. The members are raising awareness of such risks with banks and external stakeholders, requiring or encouraging banks to disclose information on climate-related financial risks and on stress-testing of such risks, and promoting the growth of sustainable finance.
The following are the key findings of this stock-take exercise:
- The majority of BCBS members consider it appropriate to address climate-related financial risks within their existing regulatory and supervisory frameworks.
- An overwhelmingly large share of members have conducted research related to the measurement of climate-related financial risks, while a number of members identified operational challenges in assessing climate-related financial risks—namely, data availability, methodological challenges, and difficulties in mapping of transmission channels.
- A majority of the members have raised risk awareness with banks through different channels and many banks are disclosing information related to the climate-related financial risks to some extent.
- Approximately two-fifth of the members have issued, or are in process of issuing, more principles-based guidance regarding the climate-related financial risks. However, the majority of members have not factored, or have not yet considered factoring, the mitigation of such risks into the prudential capital framework.
Regarding other initiatives on climate-related financial risks pursued by members and observers, 17 jurisdictions indicated that they are pursuing additional work, which can be broadly divided into four different strands:
- One-third of the jurisdictions mentioned that participating in the work of the Network for Greening the Financial System (NGFS) continues to be a priority.
- Roughly a third of the jurisdictions mentioned stress testing of climate-related financial risks as future potential work. In this context, stress testing has to be understood in a wide sense and includes developing key risk indicators and conducting sensitivity analysis.
- One jurisdiction stated that it is working to expand its sources of data available to researchers and to further collaborate with researchers and central banks in other jurisdictions.
- A handful jurisdictions mentioned implementation and expansion of sustainable finance as a potential future work in their jurisdictions.
The stock-take was conducted ahead of the COVID-19 pandemic, which has further highlighted the importance of mitigating risks of events with severe global impact. In total, 27 members and observers, including ECB and EBA, responded to the stock-take. Annex 1 of the report sets out the full list of members and observers that participated in the stock-take. The stock-take sought responses from BCBS members on a number of areas, including the role of climate-related financial risks in the regulatory and supervisory framework, banks’ approaches to managing and disclosing climate-related financial risks, the supervisory treatment of such risks, and other initiatives that are underway among respondents. Annex 2 of the report presents the set of stock-take questionnaire.
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Keywords: International, Banking, ESG, Sustainable Finance, Stress Testing, Disclosures, Climate Change Risk, BCBS
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