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:

  1. Assessing climate risk as a financial risk in stress tests
  2. Encouraging or mandating climate-related financial disclosures
  3. 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.

Download the report

“TACKLING CLIMATE CHANGE: THE ROLE OF BANKING REGULATION AND SUPERVISION”. 

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How can Mazars help?

In response to the major threat posed by the climate emergency to financial stability, central banks and supervisory authorities are increasingly focussing on incorporating climate risk criteria when assessing and stress testing financial institutions. In addition, several initiatives such as the UNEPFI Principles for Responsible Banking and the Task Force on Climate related Financial Disclosures (TCFD) are gaining momentum, encouraging the scaling up of green financing. At Mazars, we can support financial institutions in responding to regulatory expectations, adhering to sustainability principles, and more broadly, navigating the complex risks and make the most of opportunities emerging from sustainability and climate change.