Disponible en Español
Course on Climate Risk and Financial Stability
July 18-22, 2022
CEMLA, Toronto Centre
The course was held in a digital format on July 18-22, 2022, and was attended by 26 representatives from 22 institutions and associates of CEMLA, representing 19 countries from Latin America and the Caribbean, 2 European countries, and 1 Asian country.
The course was imparted by the Toronto Centre and covered the following topics: the understanding and management of environmental risk by financial institutions, climate scenario analysis and stress testing, the development of definitions and standards to identify green assets, and the adaptation of macroprudential frameworks to climate-related risks.
Participants were taught different types of environmental risks and their effects on the financial system. They discussed how these risks could be incorporated into their institutions’ risk management frameworks, and the collective efforts to address the issue, such as the Task Force on Climate-related Financial Disclosures. In addition, throughout the week, they had hands-on sessions and a policy simulation exercise. Finally, the participants listened to the experiences from three country representatives talking about their current work, the challenges they are facing, and future plans.
Some additional takeaways from the course were the following:
- Climate risks should be adequately addressed by financial authorities as they may trigger the materialization of other risks and feedback loops that could pose a serious threat to financial stability.
- Financial institutions carry out individual and joint efforts to tackle climate risks. The methodologies involved in these efforts are data intensive and require standardized information to allow for comparability, reliability and consistency in policy design and the implementation of more sustainable practices in finance (also referred to as “green finance”).
- The classification of economic activities according to their impact on the environment and the disclosure of climate-related financial information are useful tools to reduce information asymmetry.
- Stress testing is a technique to assess the effects on a financial institution due to changes in risk factors. Some forms of stress testing include statistical modeling, sensitivity analysis, and scenario analysis. Scenarios consider simultaneous changes in multiple factors that are plausible and consistent with the different characteristics (social, environmental and economic, etc.) of the analyzed area.