{ "title": "Regulatory and Policy Initiatives to Address Sustainability-related Risks and Opportunities", "publication": "IMF News, November 27, 2023", "sourceUrl": "https://www.imf.org/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities", "canonical": "https://www.imf.org/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities", "overlayPath": "/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/index.md", "summary": "Achieving net-zero carbon emissions by 2050 requires a deep economic transformation, substantially impacting financial systems.", "publishDate": "2023-11-27", "sections": [ { "heading": "Context and central finding", "content": "- Achieving net-zero carbon emissions by 2050 requires a deep economic transformation, substantially impacting financial systems.\n- Financial sector regulators and supervisors have important roles in enhancing the resilience of the financial sector to climate-related shocks and in building a foundation of transparent and fair markets for investment in transition finance.\n- Date: November 27, 2023." }, { "heading": "Prudential framework and supervisory action", "content": "- Financial supervisors should incorporate climate-related financial risks into the prudential framework to ensure financial institutions can weather climate-related shocks and continue to provide financing for the transition to a low-carbon and sustainable economy.\n- Experience shows that even simple supervisory actions can trigger a meaningful response from financial institutions and better climate-risk management.\n- All climate-related initiatives of supervisory authorities should be consistent with their core mandate, primarily ensuring financial stability, and must be consistent with legal mandates.\n- Prudential supervisors should focus on promoting a safe and sound financial system; securities regulators on creating fair and transparent markets with adequate investor protection safeguards.\n- Financial regulation and supervision should not be used as substitutes for effective government policy on climate change." }, { "heading": "Basel Committee guidance", "content": "- The Basel Committee on Banking Supervision Principles for the Effective Management and Supervision of Climate-related Risks:\n - Provides specific guidance for supervisors and banks.\n - Sets out 18 principles covering corporate governance, internal controls, risk assessment, risk management, and reporting.\n - Extends and further specifies the Basel Core Principles for Effective Banking Supervision, while building on previous analytical reports and the work of the Network for Greening the Financial System.\n - Offers a common set of high-level principles and guidance while retaining flexibility given heterogeneous and evolving practices.\n - Member supervisory authorities should implement these principles through adapted supervisory guidance and monitoring, considering jurisdiction-specific risk profiles and the principle of proportionality.\n- Additional supervisory guidance on transition planning is being considered, including forward-looking risk identification, client engagement, and climate scenario analysis." }, { "heading": "Insurance sector guidance (IAIS and SIF)", "content": "- The International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) published the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector in 2021.\n - Builds on a limited number of Insurance Core Principles covering supervisory review and reporting, corporate governance, risk management, investments and disclosure.\n - Provides background and guidance on how the Insurance Core Principles can be used to manage challenges and opportunities from climate-related risks.\n- Ongoing IAIS work includes three packages of additional material for supervisors:\n - Consultation earlier this year on amendments to the Insurance Core Principles to incorporate climate-risk considerations directly in the Principles covering corporate governance and risk management.\n - Recent consultations on climate scenario analysis and market conduct issues related to climate risk, notably covering the risk of greenwashing.\n- SIF is working on guidance for transition plans and surveying the extent that Pillar 2 requirements are incorporating climate-related risks in practice." }, { "heading": "Data, disclosures, and market transparency", "content": "- The quality and availability of climate-related data and information remains a challenge; evaluating physical and transition risks requires information that is currently largely missing.\n- Financial Sector Assessment Program and technical assistance experience show that lack of relevant climate data is common across jurisdictions.\n- International Sustainability Standards Board issued international standards on climate-related disclosures this year, building a global framework for reliable and comparable data around sustainability-related risks and opportunities.\n- Supervisory reporting should be tailored to each jurisdiction depending on the risk profile and supervisory needs; data must be granular enough and adequately forward-looking.\n- Interactive and focused dialogue between supervisors and industry should be enhanced to plug data gaps." }, { "heading": "Scenario analysis and forward-looking supervision", "content": "- Scenario analysis is a critical aspect of the supervision process because historical trends and parameters are unlikely to hold under most climate-risk scenarios.\n- Financial institutions should address climate-related risks in a forward-looking manner and supervisors should challenge the assumptions firms use in managing risks and setting strategies and business models.\n- The NGFS has designed scenarios for assessing the impact of climate change on the financial sector and has updated them several times; these scenarios can be a useful reference for supervisory authorities to set up a forward-looking assessment toolkit consistent with a risk-based supervisory approach.\n- The IAIS application paper under consultation builds on NGFS work in an insurance context." }, { "heading": "Transition planning", "content": "- Transition planning includes:\n - (i) the internal strategic planning and risk management processes undertaken by a firm to prepare for both risks and potential changes in business models associated with the transition to a lower carbon economy, and\n - (ii) the “transition plan” as the firm’s tangible output of the transition planning process.\n- Transition planning is becoming increasingly important in risk management and can be a useful source of information to supervisors." }, { "heading": "Securities markets and transition finance", "content": "- Securities market regulators can create a foundation of transparent and fair markets for transition finance.\n- Disclosure standards should be strengthened to ensure availability of relevant, accurate, and comparable information on climate risks and opportunities for investors.\n- The regulatory framework for intermediaries and markets relating to climate products should be strengthened, along with improved supervision and enforcement with respect to greenwashing.\n- Fair, efficient, and transparent transition finance markets with adequate investor protection safeguards will help boost funding for the climate transition." }, { "heading": "Capacity building and IMF support", "content": "- Regulators and supervisors need to allocate adequate resources and set dedicated action plans to build effective supervisory capacity in the medium term, incorporating evolving international standards, methodologies, and practices.\n- Supervisory authorities need to connect interdisciplinary knowledge and ensure action plans are inclusive across organizational functions, starting from the top.\n- The IMF provides guidance through capacity development work, delivered in part by regional centers, on how to conduct climate-risk analysis and adjust frameworks in line with the Basel Committee’s Principles for the Effective Management and Supervision of Climate-related Financial Risks.\n- Over time, IMF technical assistance will incorporate other international standards as they evolve.\n\nSource: Regulatory and Policy Initiatives to Address Sustainability-related Risks and Opportunities (IMF), November 27, 2023.\n\n---\n\n\n References\n\n- Tobias Adrian\n- IMF-World Bank Debt Sustainability Framework for Low-Income Countries -- A Factsheet\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities" } ], "bullets": [ "[Markdown version](/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/index.md)", "[Structured JSON version](/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/index.json)", "[Bundle manifest](/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/bundle-manifest.json)", "Published: November 27, 2023", "Achieving net-zero carbon emissions by 2050 requires a deep economic transformation, substantially impacting financial systems.", "Financial sector regulators and supervisors have important roles in enhancing the resilience of the financial sector to climate-related shocks and in building a foundation of transparent and fair markets for investment in transition finance.", "Date: November 27, 2023.", "Financial supervisors should incorporate climate-related financial risks into the prudential framework to ensure financial institutions can weather climate-related shocks and continue to provide financing for the transition to a low-carbon and sustainable economy.", "Experience shows that even simple supervisory actions can trigger a meaningful response from financial institutions and better climate-risk management.", "All climate-related initiatives of supervisory authorities should be consistent with their core mandate, primarily ensuring financial stability, and must be consistent with legal mandates.", "Prudential supervisors should focus on promoting a safe and sound financial system; securities regulators on creating fair and transparent markets with adequate investor protection safeguards.", "Financial regulation and supervision should not be used as substitutes for effective government policy on climate change.", "The Basel Committee on Banking Supervision Principles for the Effective Management and Supervision of Climate-related Risks:", "Additional supervisory guidance on transition planning is being considered, including forward-looking risk identification, client engagement, and climate scenario analysis.", "The International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) published the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector in 2021.", "Ongoing IAIS work includes three packages of additional material for supervisors:", "SIF is working on guidance for transition plans and surveying the extent that Pillar 2 requirements are incorporating climate-related risks in practice.", "The quality and availability of climate-related data and information remains a challenge; evaluating physical and transition risks requires information that is currently largely missing.", "Financial Sector Assessment Program and technical assistance experience show that lack of relevant climate data is common across jurisdictions.", "International Sustainability Standards Board issued international standards on climate-related disclosures this year, building a global framework for reliable and comparable data around sustainability-related risks and opportunities.", "Supervisory reporting should be tailored to each jurisdiction depending on the risk profile and supervisory needs; data must be granular enough and adequately forward-looking.", "Interactive and focused dialogue between supervisors and industry should be enhanced to plug data gaps.", "Scenario analysis is a critical aspect of the supervision process because historical trends and parameters are unlikely to hold under most climate-risk scenarios.", "Financial institutions should address climate-related risks in a forward-looking manner and supervisors should challenge the assumptions firms use in managing risks and setting strategies and business models.", "The NGFS has designed scenarios for assessing the impact of climate change on the financial sector and has updated them several times; these scenarios can be a useful reference for supervisory authorities to set up a forward-looking assessment toolkit consistent with a risk-based supervisory approach.", "The IAIS application paper under consultation builds on NGFS work in an insurance context.", "Transition planning includes:", "Transition planning is becoming increasingly important in risk management and can be a useful source of information to supervisors.", "Securities market regulators can create a foundation of transparent and fair markets for transition finance.", "Disclosure standards should be strengthened to ensure availability of relevant, accurate, and comparable information on climate risks and opportunities for investors.", "The regulatory framework for intermediaries and markets relating to climate products should be strengthened, along with improved supervision and enforcement with respect to greenwashing.", "Fair, efficient, and transparent transition finance markets with adequate investor protection safeguards will help boost funding for the climate transition.", "Regulators and supervisors need to allocate adequate resources and set dedicated action plans to build effective supervisory capacity in the medium term, incorporating evolving international standards, methodologies, and practices.", "Supervisory authorities need to connect interdisciplinary knowledge and ensure action plans are inclusive across organizational functions, starting from the top.", "The IMF provides guidance through capacity development work, delivered in part by regional centers, on how to conduct climate-risk analysis and adjust frameworks in line with the Basel Committee’s Principles for the Effective Management and Supervision of Climate-related Financial Risks.", "Over time, IMF technical assistance will incorporate other international standards as they evolve.", "[Tobias Adrian](http://www.imf.org/external/np/bio/eng/ta.htm)", "[IMF-World Bank Debt Sustainability Framework for Low-Income Countries -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/imf-world-bank-debt-sustainability-framework-for-low-income-countries)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/index.md", "json": "/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/index.json", "bundleManifest": "/en/news/articles/2023/11/27/sp-regulatory-policy-initiatives-address-sustainability-related-risks-opportunities/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T02:32:26.732Z" }