The Hong Kong Money Authority (HKMA) published a White Paper on 30 June 2020 to set out its recommendations and supervisory expectations on green and sustainable banking around four areas: governance, strategy, risk management and disclosure. The HKMA advised AIs which are subsidiaries of international banks to assess relevance of any parent bank’s climate policy in the context of its Hong Kong operations and ensure that local specialties are addressed.
In formulating these recommendations, the HKMA has recently consulted selected AIs about their approach to climate risk management in the four areas. Some of the key measures adopted by these AIs are noted and have been used as practical guidance in the White Paper (see HKMA circular dated 7 July 2020 and Annex).
Below is an overview of the recommendations set out by the HKMA:
|Governance: Board’s accountability in climate resilience and oversight of climate strategy development and implementation
The HKMA noted that the most advanced AIs have:
|ii.||Strategy: AIs should embed climate considerations throughout the strategy formulation process, while organisational structures, business policies, processes and resources availability should be reviewed and enhanced to ensure effective strategy implementation.
The HKMA noted that advanced AIs have adopted 3 board initiatives:
|iii.||Risk Management: AIs are expected to incorporate climate risk considerations into their existing risk management framework.
The HKMA noted that advanced AIs have:
|iv.||Disclosure: AIs should develop an approach to disclosing climate-related information to enhance transparency, taking the Task Force on Climate-related Financial Disclosures (TCFD) recommendations as the core reference.|
The HKMA noted that advanced AIs aimed to develop a voluntary, consistent climate-related financial risk disclosure framework for firms to report information to stakeholders—some AIs have even included climate-related disclosures in their annual reports. Through disclosures, AIs can help stakeholders make informed decisions and improve climate risk management in the banking industry.
Please refer to the White Paper for more information regarding the above recommendations.