BSH prepares the first guide on financial risks related to the climate and the environment

2024-09-04 07:25:00, Ekonomi CNA

BSH prepares the first guide on financial risks related to the climate and the

The Bank of Albania has prepared for the first time a guide for commercial banks, on Banks should integrate climate risks in the general framework of risk management, to avoid unexpected losses. Risks related to the climate and the environment can have a direct impact on the business activity of banks. Banks must identify risks arising from climate change and environmental degradation at the level of key sectors or geographic areas as well as at the level of products and services it offers or plans to offer, taking into consideration that some of these risks may materialize over a period of time medium or long term.

Climate and environmental risks can affect, for example, economic growth, employment or property prices at a national, regional or local level. Weather events can cause droughts or floods that affect a region's agricultural production, housing demand or collateral value, nationally, regionally or locally. In parallel, competition is affected by the development of a green financing market and consumer preferences shift from high-carbon or otherwise polluting goods and services to low-carbon or otherwise "green" products and services.

In identifying risks, a bank can categorize its customers or portfolios according to climate risk exposures. For example, geographic clustering can help identify exposures that are exposed to high physical hazards, such as high risk of flooding or drought. Banks must also consider the impact that their development strategy and business model may have on the environment, for example, through measuring and limiting greenhouse gas emissions or the resource efficiency of its core portfolios, or arising from their activities.

On this basis, banks should take steps to mitigate transition risks, for example gradual reduction or even with Banks should assess whether to develop sustainable products that are considered to be more resistant to climate and environmental risks. These include products commonly labeled as "green".

Banks can use such products as a tool to achieve its climate and environmental risk objectives and adjust its business model and portfolio composition. For example, the bank may set strategic targets or limits regarding its exposures to certain economic activities or sectors.

Further, the bank should bear in mind that setting strategic objectives is likely to change its overall risk profile, resulting in the need to review its risk appetite./ Monitor Magazine