Denis Beau: Emerging supervisory priorities - technology, risk
culture and sustainability
Opening remarks by Mr Denis Beau, First Deputy Governor of the Bank of France, at the
BCBSBSCEE-FSI High-level Meeting for Europe on Banking Supervision, Session: "Emerging
supervisory priorities: technology, risk culture and sustainability", Vienna, 21 May 2019.
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Accompanying slides of the speech.
Along with some other national central banks, in particular the Bank of England and the
Dutch National Bank, the Banque de France ant its supervisory arm, the ACPR has
in particular on financial risks arising from
started to work on sustainability risks since 2015,
climate change. This willingness to take ownership of this issue was linked with the requirement
from the French Energy Transition Act of 2015 to prepare a report discussing the feasibility of
stress-testing exercises focusing on climate change-related risks, though the scope of the report
was finally broader as it discussed the relevance of these risks for French banks.
Our conclusions, published in March 2017, were that climate-related risks, in
particular transition risks in the case of French banks, were relevant for financial
although the horizon of materialization was perceived way beyond the one
stability,
underlying most of the risks we currently supervise and horizon of decision of banks. From
this point of view, it was deemed within the mandate of the supervisor to raise
awareness and enhance ownership of these potential risks throughout the banking
sector via regular meetings with institutions. It also emphasized the need to collectively think
how, as a supervisor and a central bank, we should deal with risks and avoid the build-up of
new vulnerabilities (e.g. helping to enhance the financing shift towards low-carbon sectors).
Those reflections gave birth to the Network for Greening the Financial System in December
2017.
As a continuation of this work and also in the spirit of bringing our contribution to the
reflections of the NGFS,
the ACPR surveyed both main French banking and insurance
companies in 2018 to take stock of progress they have achieved in dealing with
The main takeaways from both surveys have been
climate change-related financial risks.
th 1
published last April 10 2018 in two reports .
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The report dedicated to the banking sector includes three main observations:
There is a shift in the governance of climate change-related risks from a
"Coporate and Social Responsability-only" perspective towards a two-pronged
This trend is nevertheless
approach which integrates traditional risk departments.
mainly observable in the biggest and most internationally active institutions and the
operational implementation could be improved significantly (lack of metrics,
specification of strategic orientations at the business-line level...).
The development of risk analysis tools is mainly focused on transition risks as
related exposures represent a potentially much larger share of their balance
sheet (net credit exposure to the most carbon-intensive sectors indeed averaged
12.2% of total exposures in 2017 among 6 of the 7 main French banks) compared to
physical risk-related exposures (as most of assets are located in countries displaying a
low vulnerability to climate change e.g. Western Europe). A wide variety of tools have
been reported but each of them has still important drawbacks arguing for further
refinement and more data collection with certainly a need for support from supervisors.
Finally, liability risk is not viewed as a material one at this stage despite a growing
number of climate change-related litigation cases.
Therefore, there is ample room for progress leading the ACPR to lay-out
recommendations directed to institutions on the one hand and to regulators and the
supervisors on the other hand. In particular, as a supervisor we should be able to
quickly come up with a prudential reporting of exposures to unsustainable activities.
From this point of view, the forthcoming taxonomy from the European Commission will
certainly be useful but not enough to achieve this as a taxonomy of unsustainable
activities is needed. We should also anchor expectations of financial institutions about
climate-related risks by publishing strategic roadmap about the way the supervisor
intends to scale-up the supervision of these risks along the different regulatory pillars.
Also, developing stress-testing frameworks remains a collective challenge about which
central banks and supervisors should strengthen their works.
At our level, the next stage of our works is to organize work streams with banks in order to
specify together the best practices of the sector in terms of governance and to reflect on
scenarios and metrics to best assess the vulnerability of banks, liaising with the work carried
out with the NGFS. At the end, the release of these surveys and their follow-up signal the
willingness of the ACPR / Banque de France to gradually "mainstream" climate
changerelated risks. This willingness is also growing among European Institutions as attested by
the recent move from the SSM to launch its own internal network combined with an NCA
Climate contact group. The ambition is to contribute to European and international fora as
well as be in the position to adopt resulting guidelines or requirements (in the EBA case).
Nevertheless, at a moment where networks or work streams are burgeoning, especially
within European institutions, we should be very careful about the good coordination of these
different initiatives to avoid redundancy and duplication. It is also important that the NFGS,
which remains a club of the willing, ensure some minimal degree of cooperation and
harmonization by issuing high-level recommendations. From this point of view, I welcome
the six very important recommendation issued in April directed to supervisors, central banks
and the financial sector: i) integrating climate-related risks into financial stability monitoring
and supervision; ii) integrating sustainability factors into own-portfolio management; iii)
bridging the data gaps ; iv) building awareness and intellectual capacity and encouraging
technical assistance and knowledge sharing ; achieving robust and intentionally consistent
climate and environment related disclosure ; vi) supporting the development of a taxonomy
of economic activities.
In the longer-run, when there will be a global convergence about the necessity to issue
global standards and regulatory requirements, global standard setter such as the BCBS and
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FSB would need to take the lead on addressing climate change-related risks.
1
Main findings : Climate change: which risks for banks and insurers? acpr.banque-
france.fr/sites/default/files/medias/documents/as_cover_note_en.pdf Analysis and synthesis no. 102: "French
insurers facing climate change risks" April 2019 acpr.banque-
france.fr/sites/default/files/medias/documents/as_102_climate_change_insurers_en.pdf
2
Analysis and synthesis no. 101, "French banking groups facing climate change-related risks", April
2019acpr.banque-france.fr/sites/default/files/medias/documents/as_101_climate_risk_banks_en.pdf