UNEP FI responds to Basel Committee on Banking Supervision consultation on its principles for management and supervision of climate-related financial risks

17 February 2022

At UNEP Finance Initiative, we believe that the financial sector has a central role to play in managing climate risk and ensuring an orderly transition to a sustainable future, and with our members, we have conducted extensive work on climate-related financial risks and disclosures through our sustainable finance frameworks, net-zero alliances, and TCFD pilot programmes. We also believe that strong regulatory action can help catalyse the financial sector to address the risks posed by climate change and the net-zero transition. Therefore UNEP FI strongly welcomes the publication of the Basel Committee on Banking Supervision (BSBC)’s Principles for the effective management and supervision of climate-related financial risks. We have responded to the consultation and you can find a summary, as well as a link to the full response below.

The document provides actionable guidance to both financial institutions and financial supervisors and we particularly welcome the following:

  • Continued acknowledgement that climate risks are financial risks and that additional guidance is required within the financial sector for their management
  • Recognition that climate change poses capital, liquidity, credit, market, operational, and other risks
  • Principles for supervisors on how to evaluate firms’ climate risk management practices
  • A complete set of operational areas to consider in managing climate risks: corporate governance, internal control framework, capital and liquidity policy, risk management process, management monitoring and reporting, comprehensive management of credit risk, comprehensive management of market, liquidity, operational, and other risks, and scenario analysis
  • Guidance to consider various time horizons and different scenarios in assessing the preparedness of an institution to face climate-related financial risks
  • Guidance on the monitoring and reporting of climate-related financial risks by financial institutions
  • Consideration of the potential application of these principles to other environmental and nature-related risks

We also offered a few recommendations for further enhancement of the Principles:

  • Aligning the Principles with international standards around disclosure standards and good practices for climate risk management.
  • Encouraging strong regulatory action to enhance the financial sector’s preparedness to confront climate-related risk and improve the quality of climate-related financial disclosure.
  • Using credible net-zero by 2050 scenarios aligned with the 1.5°C temperature rise objective.
  • Giving prescriptive guidance on important metrics to disclosure and credible scenarios to use.
  • Broadening the Principles to related areas of environmental risk such as biodiversity loss, deforestation, pollution, water and human rights issues that can also pose financial risks.

A copy of our response including detailed comments on the Principles can be downloaded here.

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