Clarity AI’s Post

Published jointly by #OliverWyman and #afme (Association for Financial Markets in #Europe), this important guidance report entitled: 𝗔 𝗰𝗼𝗺𝗺𝗼𝗻 𝗽𝗮𝘁𝗵 𝘁𝗼 𝗶𝗺𝗽𝗿𝗼𝘃𝗲 𝗘𝘂𝗿𝗼𝗽𝗲𝗮𝗻 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 𝗦𝘁𝗿𝗲𝘀𝘀 𝗧𝗲𝘀𝘁𝗶𝗻𝗴 𝗮𝗻𝗱 𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 aims to propose an appropriate scope for internal and external regulatory exercises, the sufficiency of existing analytical tools and data sources, and analytical capabilities banks should develop. It also tackles the question of how climate risk stress testing results should be used by banks and regulators and embedded into bank operations. The other issues analysed in the report include various aspects of the climate risk stress test, including modelled risk types, portfolios in scope, modelling granularity, time horizons, and balance sheet approach. As noted in the report: “𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 𝘀𝘁𝗿𝗲𝘀𝘀 𝘁𝗲𝘀𝘁𝗶𝗻𝗴 𝗶𝘀 𝗽𝗿𝗼𝘃𝗶𝗻𝗴 𝘁𝗼 𝗯𝗲 𝗮 𝗰𝗿𝘂𝗰𝗶𝗮𝗹 𝗳𝗿𝗼𝗻𝘁𝗶𝗲𝗿 𝗶𝗻 𝘁𝗵𝗲 𝗯𝗮𝗻𝗸𝗶𝗻𝗴 𝘀𝘆𝘀𝘁𝗲𝗺". #GRC #ESG #climaterisk #riskmodeling #riskmanagement #stresstesting #riskmeasurement #modelriskmanagement #MRM #governance #scenarioanalysis #regulatoryguidance #financialrisks #transitionrisk #balancesheetapproach #capitaladequacy #bankingsector #financialmarkets

The ECB has grown increasingly active in its efforts to get lenders to treat ESG risks — particularly climate change — as financially material. The Frankfurt-based central bank has conducted climate stress tests and even threatened some lenders with fines for failing to take ESG risks seriously. A 2023 study by the ECB found that almost three-quarters of European banks’ corporate loan books are exposed to nature-related risks. And ECB Executive Board Member Frank Eldersonsaid earlier this year that he and his colleagues “will continue insisting that banks actively manage the risks” associated with dealing with climate change. #eu #esg #esgreport #riskmanagement #operationstrategy #businessstrategy

The ECB has grown increasingly active in its efforts to get lenders to treat ESG risks — particularly climate change — as financially material. The Frankfurt-based central bank has conducted climate stress tests and even threatened some lenders with fines for failing to take ESG risks seriously. A 2023 study by the ECB found that almost three-quarters of European banks’ corporate loan books are exposed to nature-related risks. And ECB Executive Board Member Frank Eldersonsaid earlier this year that he and his colleagues “will continue insisting that banks actively manage the risks” associated with dealing with climate change. #esg #esgreport #riskmanagement #operationstrategy #eu

Advanced ESG strategies for climate-responsive financial systems: central bank roles, risk management, and sustainable innovation, running from October 28-30. The course will be chaired by Rianne Luijendijk, Team lead responsible investing, De Nederlandsche Bank Download brochure: https://hubs.li/Q02S0jzs0 Sessions include: -Integrating ESG in central bank operations: framework development, policy alignment, and regulatory strategies: learn how to align ESG frameworks with current green policies and establish an internal ESG system -Transparent climate risk management: best practices in disclosure, reporting and communication: explore key methodologies for accurately measuring and reporting carbon footprints, aligning with global standards -Sustainable bonds and investments: fundamentals, central bank roles, and global initiatives: discover the role of central banks in promoting transparency and efficiency in sustainable finance #centralbanking #centralbankingtraining #training #climate #virtual

#banks #capital #buffers #resilience #Basel #CRR #CRD #BRRD #systemic #climaterisk #scenarios #ECB #macroprudential I want to believe smart risk managers already include these scenarios in their own capital planning and allocation steering, and that banks already include them in finance contracts too. Projecting climate scenarios further on their own loan portfolio, building on the ECB's climate risk stress test they just had to do anyway. Why wouldn't they? European Banking Federation https://lnkd.in/eZaFWz4q

🌍 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸𝘀: 𝗔 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 𝗮𝗻𝗱 𝗮𝗻 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝗲𝗰𝘁𝗼𝗿 🌍 In the face of the climate emergency, banks and financial institutions must reevaluate their risk management strategies. Natural disasters, regulations, and the transition to a low-carbon economy all directly impact financial stability. 📉 How can the financial sector prepare for these changes? By incorporating climate stress testing, diversifying investments towards sustainable projects, and adopting responsible governance, as highlighted in recent insights from the Basel Committee on Banking Supervision (#BCBS). 🌱💡 According to the BCBS, climate-related financial risks pose a significant threat to banking stability, with both physical risks (e.g., natural disasters) and transition risks (e.g., regulatory changes) impacting credit, market, and liquidity risks. The Basel Committee’s framework encourages banks to integrate these risks into their risk management and reporting practices to promote resilience in the financial sector. 🌐 Climate risks are not just a threat; they also represent an opportunity for banks to lead in the green transition. By financing green technologies and sustainable projects, the sector can play a key role in tomorrow’s economy. #GreenFinance #ClimateRisks #Banking #GreenTransition #Sustainability 𝘏𝘰𝘸 𝘥𝘰 𝘺𝘰𝘶 𝘵𝘩𝘪𝘯𝘬 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘪𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘴 𝘤𝘢𝘯 𝘣𝘦𝘵𝘵𝘦𝘳 𝘪𝘯𝘵𝘦𝘨𝘳𝘢𝘵𝘦 𝘤𝘭𝘪𝘮𝘢𝘵𝘦 𝘳𝘪𝘴𝘬𝘴 𝘪𝘯𝘵𝘰 𝘵𝘩𝘦𝘪𝘳 𝘳𝘪𝘴𝘬 𝘮𝘢𝘯𝘢𝘨𝘦𝘮𝘦𝘯𝘵 𝘧𝘳𝘢𝘮𝘦𝘸𝘰𝘳𝘬𝘴?

Well, now we are talking. ECB published a paper about a capital buffer linked with the climate risk. This may be the first steps on imposing a capital charge on banks which are not serious enough on climate. Based on the results of the paper, most of the banks would receive a SyRB (Systemic Risk Buffer) of 50bps, while the maximum a bank would receive is 200bps. Cummulated, the SyRB would equal 51 billion EUR. The study covered 107 Significant Institutions from Euro Zone, and is only looking to the transition risk. So, this is only a minimum amount. The "real" amount will be larger. The buffer is depending on the transition risk losses as percentage of RWA. #EY #ClimateRisk #Banking

NGFS published Transition Plan Package Last week, the Network for Greening the Financial System (NGFS) published its Transition Plan Package. It has published three detailed reports on: 1. considerations for emerging markets and developing economies in tailoring transition plans; 2. how financial institutions can use real economy transition plans to inform their own climate-related risk management and facilitate transition finance; and 3. Key elements of credible transition plans and how micro-prudential authorities can assess credibility #ngfs #transitionplans #climaterisk #transitionfinance https://lnkd.in/eNKtiec2

Confirmation of the inevitable. Well near confirmation. But it was certainly inevitable. With the SEC facing class action over its climate rules from a Motley Crue of US States, the FED was never going to allow the Basel Committee incorporate climate risk into its global requirements. Even if it was a logical conclusion of the TCFD guidance developed by the FSB itself seven years ago. It puts the IFCs in a tricky spot. Merryn Somerset Webb As already reported, in the International Sustainability Institute survey ‘2024 the year sustainable finance goes offshore’ their implementation of global supervisory standards on sustainable finance has been patchy. But buoyed by the establishment of the ISSBs global sustainability standards in 2023, they expressed a commitment across the piste for implementing such supervisory standards but expressing strong concerns for regulatory divergence. This move by the Fed, blocking moves on climate in the Basel Committee, has just made the implementing of rules across the IFCs that bit trickier to navigate. #sustainablefinance #IFCs #regulation

The EBA’s 2025 stress test is here, ensuring banks can weather economic shocks. But in today’s world, resilience isn’t just financial—it’s environmental, social, and governance (ESG) too. Why it matters? It challenges 64 banks—representing 75% of EU and Norway’s banking assets—to navigate a hypothetical storm of geopolitical tensions, trade disruptions, and confidence shocks. ✅ Scenario planning helps anticipate not just market risks but climate and societal shifts. ✅ Risk management now includes ESG factors like climate impacts and supply chain ethics. ✅ Resilience means thriving in a world shaped by sustainability. The future of finance is about more than numbers—it’s about impact. How is your organisation adapting to this shift? Let’s connect and share ideas! #Sustainability #ESG #RiskManagement #Finance #EBA