Climate-related risks can manifest as classic financial risks, e.g. credit, market, liquidity, operation and reputation risks, and may affect the real economy's stability.
Banking corporations, clearing houses are exposed directly, indirectly to these risks.
Direct damage may be caused in the event of an extreme climatic event affecting the corporation's physical infrastructures which are necessary for its business continuity.
Indirect damage may be caused as a result of damage to the banking corporation's customers, the value of collateral in which the customer holds his investment portfolio.
The directive's principles clarified how the banking corporations are required to act in order to optimally manage their exposure to possible climate-related financial risks.
Based on Basel's principles for effective management of climate-related financial risks.
Alongside implementing the directive's principles, banks, clearing houses must disclose environmental, climate risks, mitigation under reporting instructions of directive 310.
Directive's qualitative guidelines will be implemented according to the regulatory framework of proper banking management, corporate governance, risk management.
Established 12 principles re effective management of climate-related financial risks.
Focus on corporate governance (principles 1-3), internal control framework (principle 4), capital adequacy, liquidity (principle 5), the risk management process (principle 6).
Monitoring, reporting (principle 7), comprehensive management of credit, market, liquidity, operational other risks (principles 8-11) and analysis scenarios (principle 12).
Effectiveness
The directive will enter into force within 24 months from the date of its publication.
In May 2024, ISR CB proposed postponing risk management principles, see #210994.
Regulators
ISR CB
Entity Types
Bank; BHC
Reference
Cir H-06-2747, Dir 345, PR, 6/12/2023; Dir 310; ESG
