BPI Comments on Basel Proposal for Management and Supervision of Climate-Related Financial Risks

Executive Summary

Given BPI member banks’ experience in this space, we believe six overarching concepts should guide the Basel Committee in finalizing its consultative paper. These principles and associated recommendations are summarized below:

The principles-based nature of the Principles appropriately reflects the diversity of climate- related financial risks to which banks may be exposed and the need for flexibility in the design and implementation of risk management approaches in this area.

  • The final Principles should retain their flexible approach and acknowledge it would be premature at this time to require banks to establish and apply quantitative limits or thresholds for climate-related financial risk.
  • The final Principles should affirm that banks may manage climate-related financial risk within existing risk management programs and risk categories.
  • The Principles should retain their recognition of the significant variability of potential climate-related financial risk outcomes over longer time horizons.

The final Principles should clearly acknowledge that banks’ approach to managing climate- related financial risk should be fundamentally risk-based, such that individual banks may tailor their risk management programs to the risks presented and calibrate that program to the risks identified.

  • The final Principles should clarify that for purposes of risk management, individual banks will need to define “materiality” in the context of their individual circumstances and risk appetite framework.
  • The final Principles should recognize that banks may design their risk management programs in a manner that best reflects their individual circumstances, as appropriate and over time.

The final Principles and their underlying expectations should reflect the fact that data and tools to measure and quantify climate-related financial risk remain nascent and not fully developed.

  • The final Principles should not establish any expectation that banks will incorporate climate-related financial risk into capital and liquidity planning at this time.
  • It is crucial that the final Principles recognize the important distinction between climate scenario analysis and regulatory stress testing.
  • The final Principles should acknowledge that it may be appropriate and beneficial for banks to support customers through their respective low-carbon transition plans.
  • We urge the Basel Committee to continue coordinating with international bodies and national supervisors to ensure consistent supervisory expectations with respect to climate-related financial risk management.

To read the full comment letter, please click here.