BCBS publication: Principles for managing and supervising climate-related financial risks

The BCBS’ initial consultative release was quickly followed by similar proposals from the Financial Stability Board and the OCC and FDIC. Movement toward consistency across the climate-related risk management frameworks is highlighted by the BCBS addition/adoption of guidance suggesting banks develop and invest in appropriate capabilities and expertise,  tie compensation policies to climate-related elements in the business strategy and risk management, align internal climate-related policies and procedures with publicly-facing strategies and commitments, and incorporate physical and transition risks into scenario analysis and stress testing. Some industry participants suggest the finalization of the BCBS principles will prompt other supervisors, including those in the U.S., to finalize their own guidance in the near term. Financial services companies should expect, however, that the U.S. regulators will set their own course, informed by international frameworks and standards; they will focus on climate-related governance, risk management, and scenario analysis, inclusive of higher expectations in areas like stress test, portfolio/sector analysis, due diligence, and integration across all risk pillars.