IMF Working Papers

Banking Law and Climate Change: Key Legal Issues

By Mario Tamez, Ender Emre, Alessandro Gullo

September 10, 2024

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Format: Chicago

Mario Tamez, Ender Emre, and Alessandro Gullo. "Banking Law and Climate Change: Key Legal Issues", IMF Working Papers 2024, 193 (2024), accessed October 8, 2024, https://doi.org/10.5089/9798400288388.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the intersection of climate change policies with banking supervisory law. Statutory mandates define banking supervisory agencies’ objectives, functions and powers. Policies that aim to address climate change risks appear fully germane to banking supervisors’ main objective of safety and soundness. As such, banking supervisory agencies have a duty to address climate risks in light of their mandate. A mandate that is not anchored on safety and soundness in light of best practice would blur the accountability of banking supervisory agencies and undermine their legitimacy also with respect to climate. While legal changes can help provide greater legal certaintly, particularly given the long-term perspective of climate change, bank supervisory agencies can take action without fundamental reforms of their legal framework. Accordingly, they have set expectations or requirements for banks to incorporate climate into their strategy and business model, risk management, and governance. A combination of legal instruments—based on soft law and hard law—helps to achieve this objective. Notwithstanding implementation challenges, taxonomies and disclosures remain important tools, and banking supervisors should assess their role in the development of such tools in light of their mandate. The key responsibility to address climate risks rests on banks, and corporate governance frameworks could assist.

Subject: Bank legislation, Climate change, Climate policy, Corporate governance, Economic sectors, Environment, Financial regulation and supervision

Keywords: Bank legislation, Banking Law, Banking supervisor, Climate Change, Climate change risk, Climate consideration, Climate policy, Corporate governance, Corporate governance framework, Global, Legal Framework, Supervisory agency

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