The Basel Committee on Banking Supervision (BCBS), the global standard setter for the prudential regulation of banks, has added climate risk as a strategic priority to its work programme for the first time.
As part of its 2021-22 agenda, the committee will examine “the assessment, measurement and mitigation of climate-related financial risks, spanning regulatory, supervisory and disclosure-related elements for the banking system.” It will also investigate how climate-related financial risks can be addressed within the existing Basel Framework.
The Swiss-based BCBS is a forum for international cooperation on banking supervision that has produced a series of international accords on bank capital requirements, liquidity and funding. It consists of 45 central banks and bank supervisors from 28 jurisdictions covering the world’s major financial markets, with secretariat services provided by the Bank for International Settlements.
Accompanying its new work programme, the BCBS also published two analytical reports on climate-related financial risks, based on literature reviews and discussions with large banks and other international forums. The first examines climate-related risk drivers and transmission channels, while the second focuses on measurement methodologies.
The reports conclude that climate risk drivers can be captured in traditional financial risk categories but more work is needed to reliably estimate this risk. The reports also found that the uncertainty associated with climate change presents a significant challenge.
Addressing that uncertainty, the BCBS will study climate-related risk for the banking system in three broad strands covering regulation, supervision and disclosure. The committee will also finalise outstanding initiatives related to mitigating risks and structural trends, including banks’ disclosure requirements for market risk and sovereign exposures.
One possible outcome from this exercise is an international accord or other coordination on climate-related financial risk disclosure requirements for banks.
The inclusion of climate-related risk into the BCBS’s work programme follows a stocktaking exercise last year examining existing regulatory and supervisory initiatives on climate-related financial risks.
This page was last updated April 30, 2021
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