BCBS Principles for the Effective Management and Supervision of Climate-Related Financial Risks Alignment Pack
Basel Committee on Banking Supervision — Principles for the Effective Management and Supervision of Climate-Related Financial Risks (June 2022)
The BCBS Principles, published in June 2022, establish 18 principles (12 for banks, 6 for supervisors) that set the global baseline for integrating climate-related financial risks into existing Basel prudential frameworks rather than creating a parallel regime. National implementation is now well advanced: the ECB's Guide on climate and environmental risks, the PRA's SS3/19, OSFI's Guideline B-15, MAS Guidelines on Environmental Risk Management, and APRA's CPG 229 all trace their design to these Principles. For internationally-active banks, the Principles are the touchstone against which supervisors assess whether climate risk is genuinely embedded in governance, strategy, risk appetite, capital and liquidity adequacy assessments (ICAAP/ILAAP), credit underwriting, and stress-testing. The 2024–2025 supervisory cycle has focused on quantification: supervisors are challenging banks to move beyond qualitative narrative disclosures to demonstrate that climate risk drivers are translated into credit rating overrides, sector concentration limits, counterparty engagement plans, and Pillar 2 capital considerations. Physical risk modelling for property portfolios and transition risk pathways for high-emitting sectors (oil & gas, power, cement, steel, agriculture, real estate) are being tested through both regulator-run exercises and firm-led scenario analysis. For CROs, the Principles now underpin the emerging supervisory expectation that climate is a driver of existing risk categories — credit, market, operational, liquidity, legal — and that quantitative integration into ICAAP is no longer aspirational but expected within the current supervisory review cycle.
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Mapped Clauses
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Linked Themes
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Scenario Packs
Regulatory Submission Text
Firms must maintain: (i) a board-approved climate risk management framework document; (ii) materiality assessment methodology and results identifying material climate risk drivers by portfolio and geography; (iii) climate risk appetite metrics and thresholds with breach protocols; (iv) climate scenario analysis results using NGFS or equivalent pathways; (v) ICAAP chapter or annex documenting climate risk quantification and any Pillar 2 add-on; (vi) credit policy amendments incorporating climate risk in origination and monitoring; (vii) counterparty transition plan assessments for high-emitting sectors; (viii) data quality remediation roadmap for Scope 1/2/3 financed emissions; and (ix) internal audit review of the climate risk framework.
Banks should develop and implement a sound process for understanding and assessing the potential impacts of climate-related risk drivers on their businesses and on the environments in which they operate. Banks should consider material climate-related financial risks that could materialise over various time horizons and incorporate these risks into their overall business strategies and risk management frameworks.
Establishes the board's ultimate accountability. Supervisors expect documented board training, climate expertise in board composition, and explicit board challenge in minutes on climate strategy and transition planning.
Banks should identify and quantify climate-related financial risks and incorporate those assessed as material over relevant time horizons into their internal capital and liquidity adequacy assessment processes, including their stress testing programmes where appropriate.
This is the operative Pillar 2 hook. Supervisors are now testing whether materiality assessments are honest and whether quantified impacts flow into ICAAP capital demand. Absence of a Pillar 2 add-on where climate is deemed material is itself a supervisory finding.
Banks should understand the impact of climate-related risk drivers on their credit risk profiles and ensure that their credit risk management systems and processes consider material climate-related financial risks. Banks should assess and monitor changes in the risk profiles of exposures and portfolios that arise from climate-related risk drivers.
Requires embedding climate into origination, rating, monitoring and provisioning. High-carbon sector concentration limits, transition plan assessments, and IFRS 9 forward-looking overlays are core supervisory expectations.
Where appropriate, banks should make use of scenario analysis to assess the resilience of their business models and strategies to a range of plausible climate-related pathways and determine the impact of climate-related risk drivers on their overall risk profile.
Scenario analysis must cover both physical and transition risks over short, medium and long horizons, typically anchored on NGFS pathways. Results should influence strategy — not just fill disclosure templates.
Banks should ensure that their risk management systems and processes consider material climate-related risks and integrate such risks into their business continuity planning and operational risk management frameworks, including for physical risks affecting their premises, operations and third-party service providers.
Ties climate risk to operational resilience. Physical risk to data centres, branch networks and critical third parties must be reflected in BCP and impact tolerance testing.