Climate risk stress test for banks and insurers in France to begin next year
By Will Buglar
Banks and insurance companies in France will undergo climate risk stress tests to ensure they are adequately managing their exposure to both the transition risks and physical risks of climate change. Speaking just before the start of COP25 in Madrid, France’s central bank governor Francois Villeroy de Galhau announced that France’s financial regulator would begin the tests from next year.
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The financial services industry has come under increasing pressure to understand and manage its climate risk exposure. In 2015, the Bank of England Financial Stability Board’s Taskforce on Climate Related Financial Disclosure (TCFD) released recommendations to encourage the banking sector to manage its climate risk.
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The financial sector has responded by beginning to grapple with its climate risk exposure. Last year for example, sixteen leading banks, UN Environment Finance Initiative (UNEP FI) and Acclimatise, published new methodologies that help banks understand how the physical risks and opportunities of a changing climate might affect their loan portfolios.
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The move by France’s financial regulator comes on the back of similar moves from other countries. The Bank of England said in October it would stress test the financial system under various climate “pathways” and the European Central Bank said earlier this month it was also considering it. Last month, Mark Carney, the governor of the Bank of England, warned major corporations that they have two years to agree rules for reporting climate risks before global regulators devise their own and make them compulsory.
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