BASEL, Switzerland–In a move the World Council of Credit Unions says deserves watching, the Basel Committee on Banking Supervision published two reports related to climate change.
“Understanding the Basel Committee’s approach on measuring climate related risks provides us with insight on how potential changes to the capital standards might affect the balance sheets of credit unions,” stated Andrew Price, senior VP-advocacy with WOCCU. “This is an evolving area that will likely bring numerous changes over the next several years.”
The two reports from the Basel Committee include Climate-related risk drivers and their transmission channels and Climate-related financial risks – measurement methodologies. According to the Bank for International Settlements, the two reports discuss transmission channels of climate-related risks to the banking system, and the measurement methodologies of climate-related financial risks.
The BIS further stated the reports:
- Note climate risk drivers can be captured in traditional financial risk categories, but additional progress is needed to better estimate these risks.
- Provide a conceptual foundation for the Basel Committee's next phase of work to identify potential gaps in the Basel Framework and consider measures to address them.
‘Still a Ways to Go’
“The report on Climate-related risk drivers and their transmission channels, discusses how climate-related risks come to fruition and how they affect banks and the banking system as a whole, while the report on climate-related financial risks – measurement methodologies, covers ‘conceptual issues’ surrounding climate-related financial risk measurements, as well as related bank and supervisory practices,” noted Price. “There is still a ways to go to identify and improve on risk mitigation and the Basel Committee is currently working on how to incorporate climate-related financial risk into their Basel Framework.”
More information on the Basel Committee’s climate-related financial risk reports can be viewed here.