The South African Reserve Bank (SARB) will amend its regulatory and supervisory frameworks to account for climate-related risks, according to its latest annual report. The central bank will also develop its macroprudential monitoring framework to increase climate resilience and will create monetary policy guidelines to respond to physical and transition risks.
Climate change mitigation and adaptation will drive significant structural change, the report says, with impacts reaching deeper than many other structural drivers. Price and quantity adjustments from climate change will be “pervasive”, it finds, and climate change will also drive an ongoing revaluation of real and financial assets.
South Africa is particularly exposed as a result of its large weather-dependent sectors such as agriculture and food processing, with transition risks amplified by South Africa’s high dependence on fossil fuel energy. A 2021 SARB survey of South African banks, insurers and other financial market actors found that while 71% of respondents believe climate-related risks could materially impact their business, only 41% had discussed climate-related risks at board level.
The SARB report summarises its annual financial statements and outlines its progress and plans in 11 key areas, including its response to climate change. During the past year SARB added a drought scenario to stress testing of South Africa’s main systemic banks and is working to develop models and scenarios for further climate stress testing. The central bank’s prudential authority has also been on climate risk indicators for use in its regulatory framework. Efforts are coordinated by a dedicated climate secretariat with staff responsible for climate related work participating in monetary policy and financial stability committee meetings.
Looking forward, the SARB’s focus will be on improving information flows within financial markets, guided by the recommendations of the Network for Greening of the Financial System. Its immediate work programme includes climate risk research, incorporating disclosure and taxonomy requirements into the regulatory framework, developing stress testing scenarios and improving data sources. This effort will be assisted by South Africa’s first national green finance taxonomy, launched in April.
Earlier this year South Africa experienced catastrophic flooding killing hundreds of people and destroying thousands of homes in Durban and the surrounding areas. Scientific analysis suggests that the likelihood of an event this severe has more than doubled because of global heating.
This page was last updated July 6, 2022
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