Featured Product

    HKMA Indicates Its Supervisory Approach to Addressing Climate Risks

    June 30, 2020

    In a recent circular, HKMA announced the publication of a white paper that presents initial thinking of HKMA about its supervisory approach to addressing climate-related issues and, to a lesser extent, broader sustainability issues. The paper presents possible actions that authorized institutions may take to address climate-related issues, including guiding principles and recommendations in the areas of governance, strategy, risk management, and disclosure. These guiding principles are designed to help authorized institutions develop a governance framework and strategy for managing the risk and opportunities brought by climate change and to provide guidance on accounting for climate considerations in their risk management framework and the formulation of an approach in climate-related information disclosure.

    The paper first describes sustainability issues such as climate change and discusses how climate-related risks can be transmitted to the banking sector, how banks in Hong Kong may be affected, and how climate change brings opportunities to banks. It then describes the regulatory development and its three-phased approach of HKMA to promoting green and sustainable banking in Hong Kong. Finally, the paper presents the initial thoughts of HKMA on supervisory expectations and requirements. HKMA hopes that the white paper can enable authorized institutions to have a grasp of the issue and help shape a greener, better, and more climate-resilient banking system. HKMA appreciates further discussion with the banking industry about the thinking presented in the white paper, before proceeding with a formal consultation of the supervisory requirements. The initial thoughts of HKMA on the supervisory expectations of authorized institutions have been summarized in the following nine guiding principles:

    • The board has primary responsibility for an authorized institutions' climate resilience. It should have sufficient understanding of the climate-related issues in determining the authorized institutions approach to address them.
    • The board should exercise oversight of the development and implementation of the authorized institutions climate strategy, including embedding climate-related risks into the authorized institutions risk appetite framework
    • Climate considerations should be embedded throughout the strategy formulation process, from strategic assessment to action plan development.
    • Organizational structures, business policies, processes, and resource availability should be reviewed and enhanced to ensure effective integration of climate strategy into the operation and corporate development of an authorized institutions.
    • Authorized institutions should identify the transmission channels and assess the impacts of physical and transition risks arising from climate change on their business. Concrete plans should be devised to address any information and data gaps.
    • Authorized institutions should build capability over time to measure climate-related risks using various methodologies and tools, among which scenario analysis should be actively explored.
    • Authorized institutions should implement processes to monitor and report exposures to climate-related risks to ensure that such exposures are consistent with their risk appetite and that timely and regular updates are provided to the board and senior management.
    • Authorized institutions should carry out measures to control and mitigate exposures to climate-related risks to ensure effective management of these risks.
    • Authorized institutions should develop an appropriate approach to disclosing climate related information to enhance transparency. When considering the information to be disclosed, authorized institutions should take  recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) as the core reference.

    HKMA recognizes that there is a wide spectrum among authorized institutions in terms of size, nature of business, complexity of operations and stage of development in their capability in addressing climate-related issues. As such, HKMA expects that these principles will be applied to authorized institutions' on a proportionate basis, and will initially focus on larger authorized institutions' which have a greater impact on the Hong Kong economy and the financial system as a whole.


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

    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

    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.

    July 29, 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
    RESULTS 1 - 10 OF 8423