Featured Product

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    Aiming to contribute to the ongoing discussion on incorporating sustainability considerations in international reserve management frameworks, CGRM, at its August 2021 meeting, set up a task force on ”incorporating climate-related risks into international reserve frameworks.” The participants of the task force included representatives from the central banks of Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States as well as from the BIS. The report begins by discussing the findings of a survey on the task force members, some of which are incorporating climate risk considerations in the management of their international reserve portfolios. It then discusses the inclusion of climate risks into international reserve management processes, in line with the central banks’ mandates and with the three pillars of investment—safety, liquidity, and profitability. Next, the report discusses the methodological challenges for climate-related reserve management, along with the data challenges and the climate risk disclosure aspects, before moving on to outline its key findings.

    The survey finds that most central bank taskforce members plan to consider climate-related risks affecting their international reserve portfolios and that central banks’ mandates, liquidity concerns, and lack of data are leading reasons for low or no climate-related investment in international reserve portfolios. The survey findings also suggest that the key metrics the central banks use, or plan to use, to monitor climate-related risks in their portfolios are scores from ESG service providers, ratings from credit rating agencies, certain carbon emission metrics, and stress test. The report identifies the below-mentioned key methodological challenges:

    • Significant uncertainties in modeling climate factors (physical and transition risks) and mapping these factors to portfolio risk and return characteristics.
    • The relative short horizons usually considered for mean-variance optimization approaches pose a challenge to adequately capturing tail risks from extreme climate events (large impact and low frequency).
    • Scenario analysis and stress testing may be useful tools for reserve managers, but they are data-intensive, require a wide range of assumptions, and are complex to implement.

    The main data challenges include a lack of consistency among distinct environmental, social, and governance (ESG) scores by different providers and challenges in constructing other relevant climate-risk metrics. Data gaps exist across risk factors, regions, and industries. For instance, gaps are observed in Scope 3 emissions data and in the granularity of geographical and issuer-specific data. Moreover, in terms of disclosures, concerns about comparability and standardization coexist with flexible formats of disclosure. By disclosing their climate-related risks, some central banks are already contributing to the development of best practices and the harmonization of approaches. The report notes that incorporation of climate risks into reserve management is still in its early stages. As a next step, the task force recommends continued collaboration between central banks to advance practices for climate-related reserve management. Going forward, central banks will contribute to the global discussions on how to assess and manage climate-related risks, accelerate the development of methodological standards, and improve transparency on climate-related risk management practices.


    Related Links

    Keywords: International, Banking, ESG, Climate Change Risk, Disclosures, Credit Ratings, Physical Risk, Transition Risk, Scenario Analysis, Stress Testing, BIS

    Featured Experts
    Related Articles

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News

    APRA Consults on Prudential Standard for Operational Risk

    The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.

    July 28, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423