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1、CLIMATE FINANCIAL RISK FORUM GUIDE 2020 SUMMARY June 2020 2 Climate Financial Risk Forum guide 2020 Summary Contents Foreword from co-chairs 3 1 Introduction 5 2 Why is climate change important for financial services? 6 3 About the CFRF 9 4 About the guide 11 5 Next steps for the CFRF 20 Annex 1: Gl
2、ossary of frequently used terms across the CFRF guide 21 Annex 2: Contributors to the CFRF guide 24 The Climate Financial Risk Forum (CFRF) guide has been written by industry, for industry. The recommendations in this guide do not constitute financial or other professional advice and should not be r
3、elied upon as such. The PRA and FCA have convened and facilitated CFRF discussions but do not accept liability for the views expressed in this guide which do not necessarily represent the view of the regulators and in any case do not constitute regulatory guidance. Copyright 2020 The Climate Financi
4、al Risk Forum 3 Climate Financial Risk Forum guide 2020 Summary Foreword from co-chairs We jointly established the Climate Financial Risk Forum (CFRF) because climate change is of paramount importance to the missions of both the Prudential Regulation Authority (PRA) and the Financial Conduct Authori
5、ty (FCA). Firms increasingly face both physical risks as the climate changes around us and transition risks from the move to a net-zero carbon economy. If poorly managed, these risks could be the source of consumer harm and potentially a future financial crisis stemming from financial losses and sud
6、den adjustments in asset values. Covid-19 has demonstrated more than ever the need for firms to be prepared for the rapid crystallisation of global risks. It has also demonstrated the value of working together to address fast-evolving risks that do not respect national boundaries. The PRA and FCA ha
7、ve committed to the delivery of a programme of climate change and green finance initiatives. This includes: the PRAs Climate Biennial Exploratory Scenario, the worlds first bottom-up system-wide climate stress test; and the FCAs proposed enhanced disclosure requirements for premium-listed issuers, w
8、hich will be aligned with the recommendations of the Taskforce for Climate-related Financial Disclosures. The guide produced by the CFRF complements our regulatory initiatives. It emphasises the importance of greater transparency and consistency around firms disclosure of climate-related financial r
9、isks, the benefits of effective risk management and scenario analysis, and the opportunities for innovation in the interest of consumers. The guide is designed to be as practical and widely- accessible as possible in considering each of these topics, as climate change will impact a broad spectrum of
10、 financial institutions, potentially in different ways. This is the beginning of a long journey and best practice will continue to evolve rapidly, but with this guide the CFRF has made significant strides in establishing current capabilities and sharing good practice with the financial services indu
11、stry. The willingness of members to collaborate on this topic has been gratifying and we look forward to this ethos continuing while we work together to develop further the best ways to manage the financial risks stemming from the climate emergency. 4 Climate Financial Risk Forum guide 2020 Summary
12、We would like to thank everyone involved in the production of this guide, especially the Working Groups, their chairs and the secretariats and we look forward to continuing to work with industry. This is of great value to our objectives of ensuring the safety and soundness of firms, financial stabil
13、ity, the proper functioning of markets and the protection of consumers. We hope that firms find this a useful tool in better understanding these risks and in enhancing their responses. Sarah Breeden Executive Director of UK Deposit Takers Supervision, Prudential Regulation Authority and Executive Sp
14、onsor of climate work for the Bank of England Sheldon Mills Interim Executive Director of Strategy and Competition, Financial Conduct Authority 5 Climate Financial Risk Forum guide 2020 Summary 1 Introduction Climate change is giving rise to risks that impact us all as individuals, the businesses we
15、 work for and the markets we operate within. Whether those risks arise from more frequent and severe weather events or the necessary transition to a net-zero carbon economy, we should expect to see substantial impacts on asset values, the cost and availability of insurance and the creditworthiness o
16、f borrowers. The understanding of these risks is relatively immature and poses unique challenges, but the need to address them is pressing. Increasing awareness and understanding of the impacts of climate change is also affecting consumers preferences, leading to growing demand for genuinely green f
17、inancial products and services. This is therefore an area where combining the efforts of the many impacted parties is essential to facilitate an accelerated and shared approach to understanding and mitigating these risks, and appropriately responding to consumers changing preferences. Against this b
18、ackground, the FCA and PRA established the Climate Financial Risk Forum (CFRF). Its key purpose is to facilitate and accelerate a shared approach to the understanding and mitigation of the financial risks, and capture the opportunities, posed by climate change. The CFRF has brought together expertis
19、e from across industry and has been sharing good practice and analysis to advance thinking on how firms can better manage the risks posed by climate change and support the transition to a net-zero carbon economy. This CFRF guide aims to help financial firms understand the risks and opportunities tha
20、t arise from climate change, and provide support for how to integrate them into their risk, strategy and decision-making processes. As part of this, the guide considers how firms can plan for the impact of climate policies over different time horizons and assess their exposure to climate-related fin
21、ancial risks so that they can adapt their businesses in response. This overarching summary document sets out: Why it is important for financial services firms to consider climate change Background on the CFRF Information about the CFRF guide, how it can be used and summaries of the four chapters Nex
22、t steps for the CFRF This CFRF guide has been written by industry, for industry. The recommendations in this guide do not constitute financial or other professional advice and should not be relied upon as such. The PRA and FCA have convened and facilitated CFRF discussions but do not accept liabilit
23、y for the views expressed in this guide which do not necessarily represent the view of the regulators and in any case do not constitute regulatory guidance. 6 Climate Financial Risk Forum guide 2020 Summary 2 Why is climate change important for financial services? Climate change will have a signific
24、ant impact on the financial services sector and will increasingly influence consumer decision-making. For example, it could substantially affect the values of all types of financial assets and how investment managers deliver long-term sustainable value to their clients. It could increase the cost of
25、 insurance for some consumers and reduce the availability of insurance for others, which may alter the distribution of risk across the system over time. Borrowers and counterparties exposure to climate-related financial risks and opportunities, and how they manage them, could also make them more or
26、less creditworthy. It is against this fast-evolving backdrop that firms need to quickly build up their understanding of climate risks. The financial risks from climate change are typically classified as physical or transition risks, as defined in the PRAs Supervisory Statement 3/19 (SS3/19) and FCAs
27、 Feedback Statement on Climate Change and Green Finance (FS19/6). Physical risks from climate change arise from a number of factors, and relate to specific weather events (such as heatwaves, floods, wildfires and storms) and longer-term shifts in the climate (such as changes in precipitation, extrem
28、e weather variability, sea level rise, and rising mean temperatures). Some examples of physical risks crystallising include: increasing frequency, severity or volatility of extreme weather events leading to increased business disruption and losses, as well as potentially impacting the availability a
29、nd cost of property and casualty insurance. This may lead to the value of investors portfolios fluctuating substantially and insurance customers paying higher premiums or choosing not to take out coverage, leaving them or their lenders more exposed to potential future losses; and increasing frequenc
30、y and severity of flooding leading to physical damage to assets held as collateral by asset owners and banks, such as residential and commercial property. This may lead to increased credit risks, particularly for banks, or to underwriting risks for liability insurers if there are greater than antici
31、pated insurance or legal claims to recover financial losses. Transition risks may arise from the process of adjustment towards a net-zero carbon economy. The UK Government has set a target of achieving net zero greenhouse gas emissions by 2050 to respond to the challenge climate change poses. 7 Clim
32、ate Financial Risk Forum guide 2020 Summary A range of factors influence this adjustment, including: climate-related developments in policy and regulation, the emergence of disruptive technology or business models, shifting sentiment and societal preferences, or evolving evidence, frameworks and leg
33、al interpretations. Some examples include: tightening minimum energy efficiency standards for domestic and commercial buildings impacting the risk in banks mortgage, buy-to-let and commercial real estate lending portfolios; changes in relative pricing of alternatives arising from rapid technological
34、 change, such as the development of electric vehicles or renewable energy technology, affecting the value of financial assets in the automotive or energy sector; decreases in the value of certain investments that result from policy changes leading to the creation of stranded assets (i.e. assets that
35、 become worthless or uninsurable due to their exposure to physical climate change risks, such as high-carbon intensity resources that are complex to extract); and companies in the wider economy that fail to mitigate, adapt, or disclose the financial risks from climate change being exposed to climate
36、-related litigation. This could impact their market value, affecting asset owners and managers and the consumers they represent or lead to higher claims for insurers that provide liability cover to those companies. The PRA and FCA have been taking steps to address barriers to the effective managemen
37、t of climate-related financial risk and have highlighted the significance of climate change for regulated firms. The PRA has published several reports on climate-related financial risks, stressing the importance of embedding climate risk within firms. In April 2019, the PRA became the first regulato
38、r to publish supervisory expectations (SS3/19) on how banks and insurers should develop and embed their approach to managing the financial risks from climate change. These expectations have been structured around four key areas where change is considered to be most important: governance; risk manage
39、ment; scenario analysis; and disclosures. The PRA will issue follow-on observations on these expectations in the summer of 2020. Furthermore, the output of the CFRF has been structured to support firms in enhancing their climate risk capabilities to meet these expectations. In December 2019, the Ban
40、k of England (the Bank) published a discussion paper, which set out its proposed framework for the 2021 biennial exploratory scenario (BES) exercise - the worlds first bottom-up system-wide climate stress test, including both banks and insurers. The objective of the BES is to test the resilience of
41、the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial systems exposure more broadly to climate-related risk. The framework and scenarios utilised for this exercise will have similarities to the internal exercises t
42、hat firms will be undertaking, and where the CFRF documents provide some guidance. The Bank has also been keen to promote greater knowledge sharing between central banks and supervisors internationally. This includes working with other central banks within the Network for Greening the Financial Syst
43、em, through which guides on key issues such as supervision and scenario analysis have been published. The Bank will also assist the Government with its preparations for COP26, the United Nations Climate Change Conference which will take place 8 Climate Financial Risk Forum guide 2020 Summary in Glas
44、gow in November 2021, and continue its focus on embedding climate disclosure across the financial system, including through the Banks own disclosures. The FCA is also taking action in this area, to ensure that market participants are able to effectively identify, manage and disclose climate-related
45、financial risks, and can take opportunities to benefit consumers. The FCA also seeks to ensure that consumers can make well-informed decisions and have the appropriate information to do so, including on how firms are dealing with climate-related risk. To help move towards these outcomes, in its Feed
46、back Statement on Climate Change and Green Finance (FS19/6) the FCA set out three initial priorities in this area: enhancing issuers climate-related financial disclosures, including by consulting on new TCFD-aligned disclosure rules for premium listed issuers (CP20/3). The International Organization
47、 of Securities Commissions (IOSCO) also recently established a Board-level Taskforce on Sustainable Finance, with the aim of coordinating global efforts to advance the market for sustainable finance. One particular area of focus is issuers sustainability- related disclosures and the FCA is co-chairi
48、ng a workstream in this area; ensuring that regulated firms integrate consideration of material climate- related risks and opportunities into their business, risk and investment decisions, including through continuing work to build a regulatory framework for effective investor stewardship (FS19/7);
49、and ensuring that consumers have access to genuinely green financial products and services, including by undertaking exploratory policy work into the design and disclosure of sustainable retail investment products. We will be using these insights from this research to inform ongoing work with HM Treasury in line with the UK Governments commitment in the Green Finance Strategy to match the ambition of the objectives of the EU Sustainable Finance Action Plan (SFAP). 9 Climate Financial Risk Forum guide 2020 Summary 3 About the CFRF Established by t