On 16 November 2021, the Basel Committee on Banking Supervision (BCBS) issued a public consultative document titled Principles for the effective management and supervision of climate-related financial risks.

The BCBS reports that a review of the existing Basel Framework has concluded that while the ‘Core Principles for Effective Banking Supervision’ (Core Principles) and the ‘Supervisory Review Process’ (SRP) are sufficiently broad and flexible to accommodate additional supervisory responses to climate-related financial risks, supervisors and banks could benefit from the BCBS’ guidance to foster alignment in terms of supervisory expectations for addressing these risks.

The consultative document sets out 18 high-level draft principles intended to promote a principles-based approach to improving risk management and supervisory practices related to climate-related financial risks. The approach builds on the review of the current Basel Framework, particularly the Core Principles and SRP, and draws from existing supervisory initiatives undertaken by individual prudential authorities and other international bodies. Principles 1 through 12 provide banks with guidance on effective management of climate-related financial risks, while principles 13 through 18 provide guidance for prudential supervisors. The proposed principles seek to achieve a balance in improving practices related to the management of climate-related financial risks and providing a common baseline for internationally active banks and supervisors, while maintaining sufficient flexibility given the degree of heterogeneity and evolving practices in this area.

The deadline for comments is 16 February 2022.