This UNEP FI policy brief examines how jurisdictions across the Asia Pacific (APAC) region are incorporating climate-related risks into prudential frameworks, finding trends towards integration within micro- and macroprudential regulation and climate-related disclosures.
The report, “Climate-related risks in financial regulation and supervision in APAC”, assesses how central banks and banking supervisors are leveraging prudential regulation—rules and requirements intended to ensure the financial sector’s stability and soundness—in relation to climate change within their respective mandates.
Among other findings, the report shows that:
- Central bank mandates across the region demonstrate great variety in how explicitly they enable regulators to address risks and impacts of climate change—with many of the 12 jurisdictions included in the analysis explicitly or implicitly addressing climate-related risks in their mandates.
- Each of the jurisdictions has conducted or is conducting climate-focused macroprudential exercises, including climate stress testing and scenario analysis, to assess the potential impacts of climate change on financial institutions and financial system stability.
- Jurisdictions’ implementation of microprudential regulation of climate-related financial risks are broadly consistent with the Basel Committee on Banking Supervision’s three-pillar framework, with the most progress on Pillar 2, focused on supervisory review, and Pillar 3, with growing emphasis on enhancing transparency through climate-related disclosures. Work under Pillar 1 is at an earlier stage, as authorities and the BCBS continue to assess how climate-related financial risks can be effectively captured within minimum capital requirements, in line with the current evidence base and evolving methodologies.
As climate-related prudential regulation continues to evolve across APAC, there is a clear trend towards stronger mandates, greater alignment with international frameworks, more refined risk assessment methodologies and broadening of central banks’ regulatory scope to include environmental risks.