Governance and management of climate-related risks by French banking institutions: some good practices

This document builds on the work carried out by the Autorité de contôle prudentiel et de résolution (French Prudential Supervision and Resolution Authority) since 2016 on the risks associated with climate change under provision V of Law No. 2015-992 of 17 August 2015 on energy transition for green growth. More specifically, it follows the publication, in April 2019, of an issue of Analysis and synthesis dedicated to “banking groups facing climate change”. This publication contained recommendations addressed to banking institutions and supervisors. Institutions, in particular, were invited to “adopt the sector’s best practices” while supervisors were at the same time called to encourage institutions to factor in the risks associated with climate change “[...] by promoting the dissemination of good practices among institutions.”

The publication also mentioned two themes:

• the integration of these risks into banking institutions' internal governance and risk management frameworks; 

• the development of both risk analysis tools and climate change scenarios.

In response to these recommendations, the ACPR launched two working groups in July 2019. With particular regard to governance and climate risk management, these recommendations stemmed from a two-fold assessment. On the one hand, the surveys conducted by the ACPR showed that banking groups progressed at an uneven pace in relation to the integration of climate change risks into their governance. Indeed, in some institutions, the Corporate Social Responsibility approach, which focuses solely on the institution’s reputational risk, remained dominant. On the other hand, the ACPR noted that institutions would generally benefit from implementing more effectively the strategic orientations associated with climate change, from an operational standpoint, and from complementing the integration of the resultant risks into their usual risk management framework.

The good practices identified in this document derive from interactions with the nine banking institutions that participated in the survey conducted by the ACPR in 2018, as well as with the French Banking Federation (Fédération Bancaire Française). They have been reviewed by the Climate and Sustainable Finance Committee of the ACPR (“Commission Climat et Finance Durable” – CCFD) during the meeting held on the 20th of February 2020, and were submitted then to the restricted College of the ACPR. The final approval by the CCFD occurred on the 30th of April 2020 through a written procedure.

The working group dedicated to the governance of climate change risks met four times between September and December 2019. These good practices ultimately represent the ACPR's view of the integration of the risks associated with climate change in the institutions’ governance. In this document, the emphasis is placed on the consideration of climate risk by banking institutions as a financial risk. Thus, the good practices mentioned within it should be considered as a step forward towards the progressive integration of all the environmental, social and corporate governance risks, in accordance with international and European work, and in line with their materiality in terms of financial stability.