Hong Kong Monetary Authority issues draft Guideline for Banks on Climate Risk Management

On 20 July 2021, the Hong Kong Monetary Authority (HKMA) issued a draft guideline on climate risk management for consultation with the banking industry with comments due by 20 August 2021. The guideline includes expectations on governance, strategy, risk management and disclosure.

Governance: The board of directors of the bank has primary responsibility for a bank’s climate resilience, including oversight of the development and implementation of its strategy for addressing climate-related issues, and how the bank embeds climate-related risks in its risk management framework.

Strategy: Banks should embed climate considerations throughout the strategy formulation process. A process should be in place to define and document the climate-related risks that are assessed as most relevant to the bank – including both internal and external factors.

Remuneration policy and practices should also be consistent with banks’ climate strategy, for example, by linking achievement of climate-related targets with the evaluation of variable remuneration.

Risk management: Banks should incorporate climate-related risk considerations into their risk management framework, and establish effective risk management processes to identify, measure, monitor, report, control and mitigate climate-related risks.

Disclosure: For banks which are local subsidiaries or branches of foreign banks, they may rely on the disclosure arrangement at the group or head office level. A “comply-or-explain” approach may be adopted by banks, taking into account the significance of the bank’s operations in Hong Kong and the materiality of climate-related risks exposed to the bank.

More details of the draft guideline can be found here.