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    MNB Issues Consultation on Climate Risk Mitigation by Banks

    December 21, 2020

    MNB published a consultation setting out expectations for the management of climate change and environmental risks as well as the implementation of environmental sustainability aspects in the business of a credit institution. The aim of the future guidelines is to increase transparency and predictability, to facilitate the uniform application of relevant legislation, and to improve the awareness and preparedness of the banking sector in relation to these risks. The comment period for this consultation ends on February 16, 2021.

    One of the central bank's expectations, as per the draft, is that credit institutions should identify their climate change and environmental risks and be able to make informed strategic and business decisions. The draft recommendation expects the governing bodies of financial institutions with governance powers to clarify their responsibilities in relation to climate change and environmental risks. Basic expectations also include that credit institutions incorporate climate change and environmental risks into the risk management framework in a way that allows for their prudent management and the reduction or downsizing of funding for environmentally unsustainable activities. MNB also considers it a good practice for credit institutions to set targets for the development of their environmentally sustainable lending activities and for the development of lending or funding products that help environmental sustainability. It urges credit institutions to formally become signatories to the UN Responsible Banking Guidelines, thus directly committing themselves to the application of the related framework. The new draft regulation stipulates that financial institutions must publish detailed, informative data on climate change and environmental risks, taking into account the forthcoming rules. It also draws attention to the need for credit institutions to seek to reduce their own ecological footprint and to offset unavoidable (no longer mitigable) greenhouse gas emissions.

     

    Keywords: Europe, Hungary, Banking, Climate Change Risk, ESG, Disclosures, MNB

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