BCBS Issues Principles for Management and Supervision of Climate Risks
The Basel Committee on Banking Supervision (BCBS) issued consultation on principles for the effective management and supervision of climate-related financial risks, following the publication of a series of analytical reports this year. Through this consultation, BCBS seeks to promote a principles-based approach to improve banks' risk management practices and supervisory practices related to climate-related financial risks. The Committee intends to monitor implementation across member jurisdictions to promote a common understanding of expectations, support the development of harmonized practices, and facilitate implementation of the principles as soon as possible. The commend period on the consultation closes on February 16, 2022.
BCBS is taking a holistic approach to addressing climate-related financial risks to the global banking system and this includes the assessment and consideration of disclosure, supervisory, and regulatory measures. The 18 principles presented in the consultation seek to achieve a balance in providing a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given the evolving practices in this area. These principles span the following areas:
- Corporate governance
- Internal control framework
- Capital and liquidity adequacy
- Risk management process
- Management monitoring and reporting
- Comprehensive management of credit risk
- Comprehensive management of market, liquidity, operational, and other risks
- Scenario analysis
- Prudential regulatory and supervisory requirements for banks
- Responsibilities, powers, and functions of supervisors
The principles take into account the concept of proportionality. Specifically, with regard to scenario analysis, including stress testing, the principles are formulated with a view toward application to large, internationally active banks and to supervisory and other relevant financial authorities in Basel Committee member jurisdictions. However, smaller banks and authorities in all jurisdictions can benefit from a structured consideration of the potential impact of climate-related financial risks. BCBS welcomes feedback from all stakeholders, specifically on whether the principles appropriately capture the necessary requirements for the effective management of climate risks and the related supervision and if there are any aspects that the Committee could consider further or that would benefit from additional guidance. The Committee also seeks views on how the transmission of environmental risks to risk profiles of banks should be taken into account when considering the potential application of these principles to broader environmental risks in the future and what key aspects should be considered for this. Any comments on the individual principles and supporting commentary are also welcomed.
Related Links
Comment Due Date: February 16, 2022
Keywords: International, Banking, Climate Change Risk, ESG, Basel Framework, Credit Risk, Liquidity Risk, Reporting, Stress Testing, Scenario Analysis, Regulatory Capital, Operational Risk, Market Risk, BCBS
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
MAS Announces Multiple Initiatives During FinTech Festival in 2021Next Article
DNB Publishes Several Reporting Updates for BanksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.