Climate Risk Management

The Basel Committee has finalized its proposed climate-risk management principles largely unchanged from its proposal,  establishing over-arching goals at which both banks and their supervisors are asked to aim.  Much in the final standards echoes proposed OCC risk-management standards  proposed in a slightly different form by the FDIC and likely soon to be taken up by the Federal Reserve in inter-agency U.S. goals.  Neither Basel’s standards nor these U.S. principles are binding in terms of specific requirements related to capital, scenario analysis, stress testing, or governance.  Indeed, Basel’s final standards back away from suggestions in the consultation about the need in the near term for specific climate-related capital charges and for stress tests. However, these standards are intended to and likely will lay the groundwork for more binding actions as regulators gain more confidence in the data on which concrete requirements can be based and judged.