Basel Committee agrees principles for climate risk management

June 2, 2022|Written by |Basel Committee on Banking Supervision, Bank of International Settlements

The Basel Committee on Banking Supervision (BCBS) has agreed on principles for managing and supervising climate-related financial risks. The principles, to be published later this month, will provide an international baseline for banking regulators’ approach to climate change in the coming years.

The principles are aimed at improving international risk management and supervisory practices to mitigate against climate-related financial risks, the BCBS said. They are designed to be adapted to a diverse range of banking systems.

The agreement follows an extensive public consultation process based on draft proposals covering corporate governance, internal controls, risk management, monitoring and reporting, and scenario analysis. The consultation draft also proposed that banks include climate risks in their internal capital and liquidity adequacy assessments over relevant time horizons.

Publically available submissions to the consultation were characterised by division over the use of climate-adjusted capital requirements. Civil society groups called for Basel Accord capital requirements to be adapted to incorporate financial risks caused by fossil fuel exposures, and for the expansion of Basel Framework systemic risk buffers to include climate-related risks. However, industry groups were less ambitious, with the American Banking Association suggesting that no further regulatory action should be taken at this stage.

“The publication of these principles forms part of the committee’s broader assessment of potential measures – spanning disclosure, supervisory and regulatory measures – to address climate-related financial risks to the global banking system,” the BCBS said. “The committee will provide an update on its work across these dimensions in due course.”

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.

This page was last updated June 2, 2022

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