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Banks’ strategies should be consistent with public climate statements, says Basel Committee

Bank of International Settlements working group lays out 18 principles for banks and their supervisors to act as 'common baseline'.

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The heads of banks should ensure that internal strategies are “consistent” with publicly stated climate commitments, according to principles published today by the Basel Committee on Banking Supervision, the working group hosted by central banking body the Bank of International Settlements.

The new paper lays out 18 high-level principles on “effective management and supervision of climate-related financial risks” – 12 for banks and six for their supervisors – intended to act as a “common baseline”, which allows for “sufficient flexibility given the degree of heterogeneity and evolving practices in this area”. 

In the first principle, covering corporate governance, the committee, whose members comprise central banks and bank supervisors from 28 jurisdictions, wrote that “the board and senior management should ensure that their internal strategies and risk appetite statements are consistent with any publicly communicated climate-related strategies and commitments”.

The publication of the principles follows a review of the Basel Framework, the standards setting out expectations for regulators around the world on bank capital adequacy, stress testing, liquidity risks and other mechanisms for ensuring economic resilience.   

The committee found that, while the Basel Framework was “sufficiently broad and flexible” to deal with additional supervisory responses to climate-related risk, regulators and banks “could benefit from the committee’s guidance to foster alignment”, which the new principles seek to provide.    

The principles were informed by a public consultation launched last November.

For regulators, the committee suggested that in order to “foster cross-border collaboration”, supervisors should share information on the climate risk resilience of multinational banking groups, “leveraging existing frameworks for sharing information and undertaking collaborative work”. 

On capital and liquidity – principle five – banks are also called upon to develop processes to evaluate the “solvency impact of climate-related financial risks that may materialise within their capital planning horizons”. 

The committee stated that it “expects implementation of the principles as soon as possible” and added that it 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”.