French banks and insurers should speed up their response to climate change, the French banking regulator said on Tuesday, after releasing what it called the world’s first climate-related bank stress test.
Other financial observers around the world will also conduct similar tests on the financial sector to help reduce the impact of climate change on economies. Banks and other financial companies will have to disclose to investors the impact of climate change on their balance sheets under the rules proposed by the European Union.
The ACPR, the banking supervision arm of the Banque de France, conducted a voluntary pilot test on nine banks and 15 insurers – representing almost all of their respective sectors – to measure resilience to common “scenarios” such as a slow response to climate change.
It covered a 30-year period from 2020 to 2050, examining the risks associated with “transitioning” or shifting from polluting assets to more climate-friendly assets and physical risks such as fires and floods.
The watchdog found that companies’ exposures to transition risks were “rather moderate”, but that the expected increase in claims and premiums for some insurance risks was particularly noticeable.
There are also uncertainties about how quickly climate change will unfold and data gaps, the watchdog said.
“In light of these results, banking institutions and insurers must now step up their efforts to tackle climate change by integrating climate change risks into their financial risk assessment process,” the press told reporters. first deputy governor of the Banque de France, Denis Beau.
The results will have no impact on the amount of capital financial firms currently need to hold, and there will be no specific follow-up action.
“The purpose of the exercise was … to stimulate thinking, analysis and promote better integration of climate risks into risk management in businesses,” said Beau.
The French Banking Federation, an industry body, said the results showed the resilience of French banks, with relatively modest exposures to sectors like mining, oil and agriculture.
The Banque de France hosts the secretariat of the Network for the Greening of the Financial System, a group of central banks creating best practices in the regulation of banking risks linked to climate change.
The ACPR said its pilot project would help inform the Bank of England’s climate stress test in June, and a test the European Central Bank will perform in 2022.
The ACPR’s own test will become a regular event, with the next scheduled for 2023/2024.
(Reporting by Huw Jones. Editing by Jane Merriman)
Report: A first assessment of the financial risks associated with climate change: the main results of the climate 2020 pilot exercise.
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