The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector, including a revision to the policy module SA-1 on risk-based supervisory approach, a report on climate risk measurement, and a collaboration with the Carbon Disclosure Project or CDP.
One of the publications is a revised version of the Supervisory Policy Manual module SA-1 on “Risk-based Supervisory Approach” in the form of a non-statutory guideline. As set out in a circular dated June 30, 2022, HKMA has developed a two-year plan to embed climate risk considerations more fully into its banking supervisory processes. The revisions to SA-1 illustrate the HKMA approach to supervision of emerging risks such as climate risk under its risk-based supervisory approach. They also seek to align the processes described in SA-1 with the current supervisory practices of HKMA. With regard to climate risk management, authorized institutions are encouraged to continue to build up their climate risk management capabilities by implementing measures to comply with the supervisory expectations in SPM module GS-1 on “Climate Risk Management.”
Another publication is a climate risk measurement report from the Hong Kong Institute for Monetary and Financial Research (HKIMR) that reviews the motivations and challenges that financial institutions globally are facing in climate risk measurement. The report introduces a data management framework and a model-risk management framework, which can be helpful in effectively managing the data and model risks in the climate risk measurement process. The report also presents the results of a survey and interviews commissioned by HKIMR that highlight local financial institutions’ practices and challenges associated with climate risk measurement. It also discusses insurers’ long experience in climate risk measurement and explores the insights for other sectors of the financial services industry. The report concludes by offering considerations on the advancement of climate risk measurement in the financial services industry in Hong Kong. Additional considerations include strengthening local and international collaboration and improving the availability and quality of climate-related data and methodologies.
Finally, the Green and Sustainable Finance Cross-Agency Steering Group announced that it has entered into a collaboration arrangement with CDP, an international non-profit organization that runs the global environmental disclosure system for companies, to jointly enhance climate data availability and sustainability reporting in Hong Kong. As part of the collaboration, the Steering Group and CDP have developed a Climate and Environmental Risk Questionnaire, which is the first cross-sector reporting template designed for first-time reporting corporates in Hong Kong, especially SMEs. The SME questionnaire is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework and comes in three versions (Annexes 1 to 3) with different level of granularity, to cater for variation in the reporting corporates’ size and sophistication. The easy-to-use template is intended to aid corporates’ sustainability reporting processes and raise their sustainability visibility to lenders, investors, and supply chain clients to better access sustainability financing. It will also facilitate financial institutions’ collection and assessment of company-level data for risk assessment and relevant business decisions. The Steering Group and CDP have developed comprehensive guidance and learning materials for the use of the template and will arrange targeted capacity building sessions starting in Q1 2023. The Steering Group is also developing a data portal to collect and allow financial institutions to access relevant corporate data, subject to consent.
Keywords: Asia Pacific, Hong Kong, Banking, Supervisory Policy Manual, Climate Change Risk, ESG, Disclosures, CDP, Sustainable Finance, SA 1, Basel, HKMA
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Previous ArticleSBV Publishes Multiple Regulatory Updates for Banks in December 2022
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.