The Central Bank will require financial institutions to incorporate potential losses on issues related to climate change into their risk management policy.
The determination consists of new rules placed in public consultation by the municipality for a period of 60 days on Wednesday (7).
The idea is for banks to monitor and take action to prevent losses from factors such as extreme environmental conditions and the transition to a low carbon economy, incorporating these issues in their stress tests and scenario analyzes.
The new rules also improve requirements that were already part of the banks’ risk management structure in the social and environmental areas, with criteria to prevent eventual losses from impacting more traditional risks, such as those related to credit and liquidity.
The BC is also proposing that banks should be obliged to disclose a Social, Environmental and Climate Responsibility Policy, with guidelines related to these topics that should guide their business and relations with customers and the community. The new rules establish criteria for the implementation of actions and for the dissemination of information.
When presenting the proposals, the director of International Affairs of the BC, Fernanda Nechio, said that the pandemic reinforced the importance of the social, environmental and climate agenda.
“This crisis did not necessarily change the direction of our actions, but it accelerated the transformations that were already underway. There is a great need, and also an opportunity, to seek a recovery that is more sustainable and inclusive”, said Nechio.
Signaling about the Central Bank’s sustainability agenda has been expected since last September as a response to the crisis in Brazilian environmental policy, which came to generate friction with foreign investors.
The text released by the Central Bank was praised by experts in sustainable finance for standardizing, in detail, the social, environmental and climatic criteria that must be considered by financial institutions in their risk analysis.
Before, banks were obliged to create their social and environmental responsibility policies, but there was no determination on the criteria they should use.
“The definition of minimum standards enables supervision and inspection by the Central Bank,” says Gustavo Pinheiro, coordinator of the Low Carbon Economy Portfolio at Instituto Clima e Sociedade
Other advances cited by Pinheiro are the mandatory application of socioenvironmental criteria and their integration with risk and capital management.
“It is no longer just an aspirational thing and becomes a measure that effectively takes climate, social and environmental risk into the banks’ risk analysis, even impacting capital requirements, which is at the heart of the banking business.”