A majority of central bank members surveyed by the Basel Committee on Banking Supervision (BCBS) consider it appropriate to address climate-related financial risks, but most have not considered the mitigation of these risks in their prudential capital frameworks, according to a recent report released by the Basel Committee’s secretariat, the Bank for International Settlements (BIS).
Owned by its members, the BIS acts as a bank for central banks and assists in maintaining monetary and financial stability. With members representing jurisdictions accounting for about 95% of world GDP, the BIS also encourages international cooperation among monetary authorities through the Basel Process and its committees. As one of these committees, the BCBS is the primary global standard setter for the prudential regulation of banks and has recently established a high-level Task Force on Climate-related Financial Risks with a mandate focusing on climate risks to global financial stability. The BCBS survey is part of a stocktaking exercise by the TFCFR and has attracted responses from 27 members, including the world’s biggest central banks.
Most respondents have conducted research related to measuring climate-related financial risks, and most have raised climate risk awareness among the banks that they supervise. Most have also issued (or plan to issue) “principles-based guidance” concerning climate-related financial risks, but data availability, methodological challenges, and difficulties in mapping transmission channels were identified as key challenges. Lack of capacity and “varying degrees of awareness” about climate change were also identified as concerns.
Significantly, central banks reported that they were primarily focused on identifying climate risks, not on mitigating them.
“The majority of respondents have not yet factored, or considered factoring, the mitigation of climate-related financial risks into the prudential capital framework,” according to the report.
Despite concern about climate risk on financial stability, only a third of the central banks responding mentioned stress testing of climate-related financial risks as future potential work.
Only a month after a major UN climate report showed that climate change is already having significant social and environmental effects, the BCBS survey suggests that central banks have yet to accept an active role in mitigating the climate risks that they are only beginning to identify.
This page was last updated April 23, 2021
Share this article