The Financial Services Agency of Japan (JFSA) set out strategic work priorities for the coming months and issued a guidance paper on the supervision of climate-related risk management.
The strategic priorities for the ongoing year (July 2022 to June 2023) pan out how JFSA will overcome challenges facing the financial system and build a foundation for sustainable growth. These include strengthening anti-money laundering and counter-terrorist financing (AML/CFT), cyber-security, risk management, lending practices that do not rely on personal guarantees, and improving the financial system to facilitate firms to address issues such as climate change. Another update involves the guidance paper on climate-related risk management, which sets out the basic approach of JFSA for supervision of financial institutions, following the recommendations of the expert panel on sustainable finance, which were published in a report in June 2021. The guidance will be a reference document to establish better practices in each financial institution and indicates that moving forward, JFSA will:
- discuss and understand how each financial institution is addressing climate change (taking into account their sizes and characteristics) and identify challenges faced by financial institutions.
- provide financial institutions with information on international trends that are rapidly progressing and share know-how on risk management and client engagement.
- support financial institutions in understanding the emissions of investee and borrower companies, which are becoming increasingly important in setting targets for decarbonization.
- review the methodology and framework of the scenario analysis exercise and consider expanding the coverage of financial institutions of the exercise, taking into account progress in international practices in scenario analysis using common scenarios.
- contribute to the development of an international framework for financial institutions’ actions to address climate change by participating in international discussions on various topics, including bridging the data gap, disclosure and auditing, private capital mobilization, enhancement of capital market mechanisms, and climate-related risk management.
- contribute to the development of standard scenarios and the improvement of data availability within global initiatives by sharing issues identified in exercises with financial institutions.
- promote dialog with financial institutions and implement other initiatives to address climate change, in close coordination with the other government-wide measures,.
Keywords: Asia Pacific, Japan, Banking, Climate Change Risk, ESG, Strategic Priorities, Sustainable Finance, AML CFT, Lending, Decarbonization, Scenario Analysis, Disclosures, Cyber Risk, JFSA
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.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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