Measurement of climate risk
As part of their financial stability mandate, the Banque de France and the Autorité de Contrôle Prudentiel et de Résolution (ACPR – Prudential Supervision and Resolution Authority) analyse banks’ and insurers’ exposure to climate risk and their ability to withstand these threats.
Climate change : a source of financial risk
The physical and transition risks linked to climate change have serious implications for finance. The Banque de France and ACPR therefore have a duty to monitor and analyse these threats as part of their financial stability mandate – although primary responsibility for climate policy lies with governments.
Central banks and supervisors can play a role in fostering sustainable finance by encouraging responsible investment. While all of us need to take steps to combat climate change, the financial sector has a decisive role to play in financing the transition to a low-carbon economy.
Climate stress tests
One of the principal challenges for supervisory authorities is to accurately measure how banks and insurers are exposed to climate risk using forward-looking stress tests. The ACPR has conducted a first major stress-testing exercise on the sector – the climate pilot exercise – the results of which were published in May 2021.
The Banque de France and ACPR are now working to make climate stress tests a standard tool in bank and insurance supervision. They are helping to finalise the analytical framework for climate risk, at both the French and European levels and, once this has been completed will look at how stress test results should affect institutions’ capital requirements.
Science and research
The Banque de France uses a multi-disciplinary approach to climate risk assessment, working closely with the academic community to identify the specific risks to finance from climate change. The scope of risks to the financial sector is gradually being expanded to include nature-related risks and risks posed by the loss of biodiversity.