Banks, a global guide to managing climate risk

Most EU banks expect climate risk to be felt within 3-5 years

(Sustainabilityenvironment.com) – Global standards for calculating climate risk in the banking sector. To standardize the way credit institutions prepare for the impact of climate change and make decisions in a world destined (for now) to become almost 3 o’clock hottest C is trying the Basel Committee, which brings together the main industry regulators from, among other countries, from the United States, Europe, Japan and China.

A necessary intervention to put an order in an area that, until now, has been very chaotic, discontinuous, and very uneven globally. What does the Basel Committee propose? In the 15-page guide published by the body, you will find information on how banks should assess how climate risk affects their business strategy, the training of senior staff and board members, internal controls, capital and wages in the short, medium and long term. And how to carry out stress tests that include, or are targeted, to probe the resilience of the industry to climate change risk.

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One of the fundamental aspects that underlie these standards is the adaptation of the banks’ evaluation, monitoring and decision-making processes to the timing risk of climate change. Credit institutions travel on horizons of 2-3 years, while the unfolding of the effects of certain phenomena can be fully revealed in much longer times.

“The high degree of uncertainty about the timing of these risks suggests that banks should take a prudent and dynamic approach to develop their risk management capabilities,” the guidelines state. “Different time horizons should be considered in the process of risk identification, risk assessment and scenario analysis. The Board of Directors and senior management should also take account of climate-related financial risks in the long term”.
Climate risk standards should be applied as soon as possible by all regulatory bodies that are members of the Basel Committee. The committee itself is called upon to oversee their implementation.

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