Home Breadcrumb caret Industry News Breadcrumb caret Industry Translating climate risks into financial risks takes work Improving data will enable banks and regulators to better capture climate risks in financial terms By James Langton | April 14, 2021 | Last updated on April 14, 2021 1 min read © photografier / 123RF Stock Photo Climate risks can be understood as traditional financial risks, but the translation needs work, global banking regulators say. On Wednesday, the Basel Committee on Banking Supervision published a pair of reports on climate-related financial risks, which concluded that these risks can be captured in existing risk categories used by banks — credit risk, market risk, liquidity risk — but that work is required to better match climate risks to banks’ exposures, and to more accurately estimate these risks. “While a range of methodologies is currently in use or being developed, challenges remain in the estimation process, including data gaps and uncertainty associated with the long-term nature and unpredictability of climate change,” the Basel Committee said in a release. Addressing these challenges will improve the ability of banks to estimate and effectively mitigate their climate-related financial risks, it said. So far, efforts to measure climate related financial risks have focused on mapping short-term transition risks to bank exposures. “Credit risk measurement has attracted the most effort, with a lesser focus on other risk categories,” it said. The Basel Committee plans to examine “the extent to which climate-related financial risks can be addressed within the existing Basel Framework,” identify any gaps in the current framework and consider possible solutions. The reports released on Wednesday are expected to provide a “conceptual foundation” for the committee’s work to find those potential gaps, it said. James Langton James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994. Save Stroke 1 Print Group 8 Share LI logo