BCBS Consults on Principles for Banks’ Management of Climate Risks

Guidance for banks on corporate governance, internal control frameworks, risk management, risk reporting, and scenario analysis, among other areas. 

The Basel Committee on Banking Supervision (BCBS) has issued a public consultation on principles for the effective management and supervision of climate-related financial risks. The consultation is open for comment until 16 February 2022.

Through the consultation, the BCBS seeks to promote a “principles-based approach” to improving banks’ risk management and supervisors’ practices related to climate-related financial risks.

The principles being proposed seek to achieve a balance in providing a common baseline for internationally active banks and supervisors, while retaining sufficient flexibility given the evolving practices in this area, the BCBS said.

The consultative document builds on a review of the current Basel Framework and draws from existing supervisory initiatives undertaken by individual prudential authorities and other international bodies.

It includes 18 high-level principles, 12 of which are to provide banks with guidance on effective management of climate-related financial risks.

This includes recommendations on corporate governance, board responsibility, internal control frameworks, capital and liquidity adequacy assessments, risk management frameworks, internal risk reporting practices, credit risk management, market risk management, and scenario analysis.

The remaining principles are intended as guidance for prudential supervisors on assessing how well banks are managing climate-related financial risks.

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