Featured Product

    HKMA Sets Out Practices of Major Banks for Management of Climate Risks

    July 07, 2020

    HKMA has set out a range of practices that have been adopted, or planned to be adopted, by major banks for management of climate risks. These practices are grouped in accordance with the nine guidance principles that have been set out in an earlier HKMA white paper that sets out its initial thoughts on the supervisory expectations on green and sustainable banking. The nine guiding principles, under which these practices fall, are in the areas of governance, strategy, risk management, and disclosures. HKMA also announced that it will invite the interested authorized institutions to participate in a pilot climate change stress testing exercise. Noting that the use of stress testing to measure climate risks is a relatively new development, HKMA will collect feedback from the participating banks on the scope, scenario, and outputs of the exercise before launching the exercise next year. More details regarding the pilot exercise will be provided to the industry in due course.

    Among other practices, HKMA highlights that the more advanced authorized institutions seek to disclose overarching issues and information related to climate change to stakeholders. Enhanced transparency via increased risk disclosures brings a number of benefits, ranging from supporting stakeholders to analyze climate-related risks and providing them with opportunities to make informed decisions, to generating new sources of information, which can contribute to a more efficient allocation of capital and to support the transition to a low-carbon economy. Disclosing climate-related risk management information, especially that on less developed areas (for example, details of methodology on climate-related scenarios to assess exposures to physical and transition risks), also provides useful references for improving climate risk management in the banking industry. 

    In formulating its initial thoughts, HKMA engaged selected major banks in a series of discussions to understand their approach to managing climate risks in these four areas. During the discussions, HKMA observed a range of practices that the more advanced authorized institutions have adopted or plan to adopt in their management of climate risks, which may be of reference value to other institutions. Authorized institutions are recommended to give consideration to these practices when developing their risk management framework. This update is intended to inspire rather than prescribe how authorized institutions should develop their approach to the management of climate risks. Authorized institutions should take into consideration the nature, scale, and complexity of their businesses and ensure that their risk management framework is proportionate and fit for purpose.

    Furthermore, authorized institutions should note the importance of being agile and responsive to changes when managing climate risks, given their distinctive nature. Climate risks are the products of multiple interacting forces (for example, natural, technological and societal) and are, thus, inherently uncertain and prone to changes. Compared to the traditional risk types, climate risks are more susceptible to non-linearity and fat-tailed distributions, which means authorized institutions will not be able to solely rely on historical data or established patterns when conducting modeling, nor could they rule out the possibility of more extreme events. Accordingly, authorized institutions should keep abreast of the latest standards on climate risk management and make adjustments to their approach based on actual developments.

     

    Keywords: Asia Pacific, Hong Kong, Banking, Climate Change Risk, Governance, ESG, Disclosures, Sustainable Finance, Stress Testing, HKMA

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484