Addressing sustainability risks in the financial sector (prudential requirements, stress tests…)

Objectives of the session

At both the global and EU levels the regulators are facing a twofold challenge. They have to assess and mitigate unprecedented types of risks i.e. climate related ones involving long term externalities, at the level of individual financial entities and the whole financial system, and – at the same time – to contribute to smoothing the transition toward a sustainable economy notably by facilitating – if not encouraging – the financing of mitigation and transition investments which actually encompass many technological gambles.

In this context the session aims at taking stock of the current understanding of the nature and magnitude of sustainability risks. It is also intended to describe accurately the challenges related to building effective sustainability risk assessment and mitigation tools. Finally, the session will try to assess the possible incentives that financial regulation could or should provide in order to adequately contribute to an unprecedented economic transition.

Points of discussion

What are the main findings of regulators (NGFS, FSB, BCBS…) and financial institutions globally, regarding the nature and magnitude of sustainability risks?

What are the main challenges to be faced in order to achieve an effective and accurate sustainability risk assessment and mitigation?

What are the current supervisory expectations and priorities to enhance financial risk management of supervised firms? What should be the regulatory timetable in the EU and globally for addressing those new regulatory challenges at both micro and macro supervision levels?