The Hong Kong Monetary Authority (HKMA) has announced plans to integrate climate risks into its supervisory processes, as reported by Responsible Investor on July 4. The HKMA will include climate risk management as a permanent item of prudential meetings with bank management over the next two years. With the new procedure, the HKMA will check on the progress made by individual institutions in addressing climate risks, including how they comply with the new Supervisory Policy Manual (SPM) module GS-1 on “Climate Risk Management” and adopt the measures in the HKMA’s circular on “sound practices supporting the transition to carbon neutrality”. In the second half of the year, the HKMA will also begin updating its CAMELS rating framework, a system that assesses the strength of regulated banks through six categories, to ensure that HKMA supervisors give sufficient emphasis to climate risk management.

The HKMA introduced a new module GS-1 on “Climate Risk Management” in its SPM in December 2021, demanding authorized institutions (AIs) to incorporate climate risk considerations into their strategies and frameworks. In the same month, the HKMA also completed a pilot climate risk stress test exercise to evaluate the climate resilience of the banking sector. Furthermore, the HKMA intends to launch another round of climate risk stress tests in 2023 and 2024. AI participating in the exercise will need to assess their resilience under multiple stress scenarios involving extreme climate situations and adverse economic and financial environment.

Sources:

https://www.responsible-investor.com/hong-kong-to-address-climate-in-prudential-supervision-mulls-changes-to-capital-requirements/

https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2022/20220630e1.pdf

https://www.hkma.gov.hk/media/chi/doc/key-information/guidelines-and-circular/2022/20220630c1.pdf

https://www.hkma.gov.hk/chi/regulatory-resources/regulatory-guides/by-subject-current/green-and-sustainable-banking/