The Basel Committee on Banking Supervision issued last week principles for the effective management and supervision of climate-related financial risks. Through this publication, the Committee aims to promote a principles-based approach to improving both banks’ risk management and supervisors’ practices related to climate-related financial risks.

The paper sets out 18 principles covering corporate governance, internal controls, risk assessment, management and reporting. They seek to achieve a balance in improving practices and providing a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given the degree of heterogeneity and evolving practices in this area.

The principles benefited from a wide range of comments from diverse stakeholders following a consultation in November 2021. They were designed so they can be adapted to a diverse range of banking systems in a proportional manner, depending on the size, complexity and risk profile of the bank or banking sector.

The Committee expects implementation of the principles as soon as possible and will monitor progress across member jurisdictions to promote a common understanding of supervisory expectations and support the development and harmonisation of strong practices across jurisdictions.

The Committee has adopted a holistic approach to assessing, measuring and mitigating climate-related financial risks that considers potential supervisory, regulatory and disclosure-related measures for the banking system. The Committee will provide an update on its work across these dimensions in due course.

In addition, it will continue to cooperate with other international financial standard setters and public sector bodies to address climate-related financial risks in an effective and coordinated manner.

Source: Basel Committee