High-level summary: BCBS TFCR industry workshop on climate-related financial risks

12-13 October 2020

On 12 and 13 October 2020, the Basel Committee on Banking Supervision's Task Force on Climate-related Financial Risks (TFCR) held a virtual workshop, chaired by Mr. Kevin Stiroh, Executive Vice President of the Federal Reserve Bank of New York and TFCR co-chair. The TFCR met with senior representatives from internationally active banks and associated industry associations to discuss how banks assess and address climate-related financial risks in practice.

The BCBS established the TFCR in February 2020 to contribute to the Committee's mandate of enhancing global financial stability by undertaking several initiatives on climate-related financial risks. In the first phase of work, the TFCR conducted a stocktake of members' existing regulatory and supervisory initiatives on climate-related financial risks. The TFCR is currently undertaking analytical work related to transmission channels of climate-related financial risks to the banking sector and measurement methodologies of such risks. The information gathered during the workshop will contribute to the development of the TFCR's analytical reports.

At the workshop, panellists from internationally active banks shared their views regarding transmission channels of climate-related risks to the banking sector and individual banks. They also discussed methodologies used or being considered to measure climate-related financial risks and the use of the methodologies in banks' risk management procedures. Banks reported progress and future work in incorporating climate-related financial risks into existing risk management frameworks and governance structures, which requires making adjustments and enhancements to reflect the unique and complex nature of climate-related risks. 

There are currently different metrics and methodologies being used to identify, assess and monitor climate-related financial risks across financial institutions, making comparability of results challenging. Panellists described the role of scenario analysis and models in quantifying transition and physical risks, noting the considerable uncertainty surrounding the scale and speed at which climate change will occur which makes assumptions difficult to narrow down. Moreover, the longer term time horizon over which the most severe scenarios may materialize is beyond the existing risk measurement or planning horizon of banks. Panellists also discussed limitations with respect to data availability and quality as well as challenges in translating climate scenarios into financial risks parameters. 

Besides continuing to improve methodologies and enlarging the scope of their analysis, banks noted they are considering how to best translate the results of climate scenario analysis into financial planning and use the results to drive internal decision making to address these risks.  Panellists described efforts to enhance scenario analysis and narrow the gaps on assumptions on climate scenarios. The NGFS Climate Scenarios were identified as being helpful in providing a common starting point for analysing climate risks.  

Panellists highlighted the benefits of international coordination in developing regulatory requirements, reporting standards and disclosure expectations. Several panellists identified the potential benefits of principles-based guidance from international standard setting bodies to align the development and phasing-in of climate risk requirements.

Overall, there was broad agreement on the value of strengthening cooperation and knowledge sharing among banks, supervisors and policy makers in order to address climate-related financial risks in a more harmonized and efficient manner. Both industry and TFCR participants welcomed the opportunity for ongoing dialogue on climate-related topics, in particular the measurement of climate-related financial risks.