On June 15, the Basel Committee on Banking Supervision (Basel) issued Principles for the effective management and supervision of climate-related financial risks. With a total of 18 high level principles, Basel seeks to help banks improve their practices related to climate financial risks.

Key principles for the management of climate-related financial risks

• Development and implementation of a sound process for understanding and assessing the potential impacts of climate-related risk drivers

• Clear assignment of climate-related responsibilities to members and/or committees and exercise of effective oversight of climate-related financial risks

• Adoption of appropriate policies, procedures and controls at the bank’s wide level to ensure effective management of climate-related financial risks

• Incorporation of climate-related financial risks into internal control frameworks across the three lines of defence to ensure sound, comprehensive and effective identification, measurement and mitigation of material climate-related financial risks

• Incorporation of material climate-related financial risks into internal capital and liquidity adequacy assessment processes

• Identification, monitoring and management of all climate-related financial risks that could materially impair the organization’ financial condition

• Risk data aggregation capabilities and internal risk reporting practices that should account for climate-related financial risks

• Use of scenario analysis, where appropriate, to assess the resilience of the organization's business models and strategies