Regulatory bodies in the Asia-Pacific region are intensifying their efforts to incorporate environmental risks, particularly climate-related ones, into their regulatory structures, according to fresh research.
The Asia-Pacific (APAC) region is taking significant strides in incorporating climate-related risks into its prudential regulatory frameworks, as central banks and regulators work towards a more sustainable and resilient financial system.
A recent analysis reveals a growing commitment by APAC authorities to address climate risks through both microprudential and macroprudential approaches. The Hong Kong Monetary Authority, Japan's Financial Services Agency, and Bank of Japan are among those conducting climate-focused macroprudential exercises, including climate stress testing and scenario analysis.
Central bank mandates across the region demonstrate great variety. While many focus on financial and price stability, some countries like Malaysia, the Philippines, Singapore, and New Zealand have explicitly included sustainability considerations. Others, such as China, South Korea, Thailand, and Indonesia, reference sustainability more implicitly.
Microprudential regulation in the APAC region aligns with the Basel Committee on Banking Supervision’s (BCBS) three-pillar framework. Pillar 2, focused on supervisory review, has seen the most progress, with regulatory authorities enhancing supervisory expectations and integrating climate risk management into banks' governance and risk frameworks. Pillar 3, which emphasises improving transparency through enhanced climate-related financial disclosures, is also gaining traction. Work under Pillar 1, which concerns minimum capital requirements, is at an earlier stage.
Trends indicate a regional shift towards stronger and clearer mandates for central banks and supervisors to address climate risks, greater alignment with international frameworks, refinement and advancement of climate risk assessment methods, and broadening of regulatory scope to explicitly incorporate environmental risks.
Policymakers and supervisors across the APAC region acknowledge the region's high vulnerability to climate impacts and the importance of a just transition, aligning financial sector activities with climate action while maintaining systemic stability and social welfare.
The report, titled "Climate-related risks in financial regulation and supervision in APAC: A policy landscape analysis", details how jurisdictions in the region are integrating climate-related risks into prudential frameworks. Strengthened regulatory foundations, informed by industry input and international best practices, will support financial stability while contributing to a broader shift towards sustainable economic growth in the region.
As climate-related prudential regulation continues to evolve across APAC, there is a clear trend towards stronger mandates, greater alignment with international frameworks, more refined risk assessment methodologies, and broadening of central banks' regulatory scope to include environmental risks. This reflects a growing recognition of climate risk as a core factor for financial system stability.
- The APAC region is integrating climate-related risks into its prudential regulatory frameworks, with a focus on both microprudential and macroprudential approaches.
- Some central banks in the APAC region, such as the Hong Kong Monetary Authority, Japan's Financial Services Agency, and Bank of Japan, are conducting climate-focused macroprudential exercises like climate stress testing and scenario analysis.
- Central banks in the APAC region are demonstrating great variety in their mandates, with some countries including sustainability considerations and others referring to sustainability more implicitly.
- The APAC region is seeing advancements in climate risk management, particularly within the microprudential regulation, aligning with the Basel Committee on Banking Supervision’s three-pillar framework, with the most progress made under Pillar 2 and Pillar 3.
