TACKLING CLIMATE CHANGE: THE ROLE OF BANKING REGULATION AND SUPERVISION REPORT
Mazars and the Official Monetary and Financial Institutions Forum (OMFIF) are proud to have come together to produce a global report providing unique insight on current and upcoming financial regulatory evolutions aimed at tackling climate change. What policy adjustments are being undertaken in different jurisdictions around the world to assess and control climate risks? How are these actions likely to develop in future? Find out in our new research and get ready for radical regulatory change.
Based on a survey of 33 central banks and regulatory authorities across the world, the report shows that most respondents now see climate risks as an important issue and acknowledge that a long-term response is needed.
Central banks now see climate change as ‘major threat’ to financial stability
The report finds that 70% of survey respondents consider climate change a major threat to financial stability and will integrate climate risks into supervisory practices and routine stress tests.
Just over half of central banks (55%) say they are monitoring climate risks, and a further 27% say they are actively responding to them. But there is disagreement over responsibilities, with 12% overall saying that, while they see climate change as a major risk, action should come from other policy institutions, such as government departments.
Regulatory approaches to climate risks
Central banks and regulatory authorities are increasingly integrating climate risks into their activities. Moving ahead, top measures expected are:
- Assessing climate risk as a financial risk in stress tests
- Encouraging or mandating climate-related financial disclosures
- Setting sustainability criteria standards for green finance/lending by regulated banks
While ‘market-fixing’ initiatives – which involve correcting market failures in financial markets – are gaining traction, central banks report being wary of using more interventionist ‘market-shaping’ prudential and monetary tools for climate purposes.
More climate stress-testing expected
The inclusion of climate-related considerations in stress tests is still at an early stage: only 15% of respondents currently include climate-related considerations in their routine stress tests of financial institutions. But this is set to soar, as nearly four-fifths (79%) say they intend to do so in the future.
Taking collective responsibility
Mazars and OMFIF believe that the success of any policy response will rely on the engagement of all market participants. Encouragingly, collaboration has already started between regulators and the private sector through various initiatives. With this survey, we hope to engage financial services leaders in a constructive dialogue and ignite conversations on how to best shape the green regulatory agenda or respond to changes in the regulatory field. Taking collective responsibility for creating the new foundations of a sustainable financial industry will contribute to building healthier economies and a fairer world – an ambition that sits at the heart of Mazars’ purpose.
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Central banks & climate crisis
About 70% of central banks and regulators see the climate changes as major threat to financial stability. Climate factors will soon be compulsorily included in stress tests.
The banking sector is currently undergoing some of the most significant changes in its history. Recent events are creating market conditions in which financial institutions will have to focus on both fundamental balance sheet management and innovative approaches to capturing funding and ensuring profitability. An already complex regulatory environment will almost certainly become even more demanding.