Sustainable finance and climate-related financial risks

Climate change, environmental degradation and the loss of biodiversity are factors that are increasingly taken into account in the decision-making of consumers and companies and in the design of state policies. Since the last years of the nineteenth century and linked to the process of world industrialization, the average temperature of the earth’s surface has not only increased globally, but has done so with an increasing trend. The impacts suffered by the planet put the issue on the international agenda.

World leaders meeting in Paris agreed on the United Nations Climate Change Conference 2015 (COP21)address climate change and its negative impacts (the so-called Paris Agreement). In this framework, to which 194 jurisdictions adhered (193 States plus the European Union), including Argentina, it establishes long-term objectives that the participating jurisdictions must take as a guide to define their own strategies and effective actions. At the 2015 G20 meeting, leaders agreed to address the climate change and sustainable finance. There it was stated that “The Paris agreement must be fair, balanced, ambitious, lasting and dynamic. We underscore our commitment to reach an agreement in Paris that reflects the principle of common but differentiated responsibilities and respective capabilities, in light of different national circumstances.”

In this sense, Argentina contributes to the global discussion by providing the perspective it shares with the other countries of the region and others of equal or lesser relative degree of development. It should be noted that these countries have historically been responsible for a very low proportion of total global emissions from greenhouse gases (GHG). For example, Argentina’s relative share of total GHG emissions worldwide reached approximately 0.8% in 2020, while the emissions of Latin American countries as a whole did not exceed 6.5%. At the same time, these jurisdictions suffer the most from the negative consequences of climate change. In this framework, it is necessary to carry out a Just Transition (in terms of requirements and access to financing) to a global economy with low levels of GHG emissions, which takes into account the different stages of development that countries are going through.

For the purposes of the local approach to this issue, in recent years in Argentina a structure has been formed that guarantees transversality in the management of long-term State policies, with the aim of establishing strategies, actions and instruments related to the study of impact, vulnerability and activities of adaptation to climate change. as well as to promote strategies for mitigating and reducing GHG emissions. These objectives require increased funding in support of a fair and affordable economic transition. In particular, at the end of 2019 with the sanction of the Law 27,520 on Minimum Budgets for Adaptation and Mitigation to Global Climate Change the National Climate Change Cabinet (originating in Decree 891/16), whose purpose is to articulate policies on climate change and raise awareness throughout society about its relevance.

Within the field of sustainable finance, and as a mechanism for the exchange of information and national coordination in this area, the Technical Committee on Sustainable Finance (MTFS) was created in 2020, with the participation of the BCRA. The MTFS, with the coordination of the Ministry of Economy, brings together all regulators in the financial sector with the aim of developing sustainable finance in Argentina and starting to promote proper management of risks associated with social, environmental and governance factors.

In September 2021, the MTFS’s task was reflected in the signing of a “Joint Declaration of the Regulators of the Banking, Insurance and Capital Market Sector in Relation to the Development of Sustainable Finance” where the commitment was made to promote the development of sustainable finance, taking into account the approach to financial risks and opportunities related to the climate. Following these guidelines, in 2023 the National Sustainable Finance Strategy (ENFS) which focuses on generating the ecosystem and conditions that allow the development of sustainable finance, as well as the identification of risks related to climate change to which the different participants in the financial sector are exposed.

Central Bank Actions

Within the framework of the mandate defined in the BCRA’s Charter, which refers to promoting financial stability, employment and economic development with social equity, actions are being planned and adopted in order to gradually address various aspects related to the potential effects of climate change on the financial system. In this regard, it includes preliminary commitments and actions by the BCRA that aim to identify, measure and mitigate the physical and transition risks associated with climate change and to promote sustainable finance.

Among the actions carried out by the BCRA to address the problem of sustainable finance within the framework of its competences, the following stand out:

A gradual plan for the creation and strengthening of capacities to complement/adapt policies to the problem of risks associated with climate change.
07/09/2021 | Signing of the Joint Declaration of the Regulatory Entities of the Banking, Insurance and Capital Market Sector in Relation to the Development of Sustainable Finance in Argentina.
22/05/2023 | Realization of the financial institutions segment of the National Survey on Sustainable Finance and Climate Change. Access the answers by homogeneous group at this link.
05/06/2023 | Adoption of the National Strategy for Sustainable Finance.
Incorporation of environmental aspects in the reserve management policy. A mechanism for determining the environmental profile of their counterparts was incorporated into the Investment Policy Manual of the International Reserves, which extends/reduces their respective credit limit.
Participation in international organizations and forums with competence in climate issues: (i) Working groups of the Bank for International Settlements (BIS) whose main focus is micro and macroprudential monitoring and the promotion of financial stability, establishment of standards on prudential regulations, (ii) Working Groups of the Financial Stability Board (FSB) whose focus is the risk assessment for the global financial system and the promotion of standards for the provision and disclosure of information. Promotion of macroprudential recommendations; (iii) G20 – Sustainable Finance Working Group (SFWG) focusing on mobilizing/scaling sustainable finance for the transition; and (iv) Network for Greening the Financial System (NGFS) which allows for exchange, training, recommendations on good practices.
28/08/2023 | Deepening dialogue and interaction with financial institutions. Firstly, in order to have a detailed vision of the relevance and approach given by the sector to various aspects that make up sustainability. Second, given the methodological challenges and lack of information associated with this problem, it aims to start with the gradual reduction of the data gap on climate-related risks. In this sense, in August 2023 the BCRA promoted a survey to assess the exposure and resilience to the aforementioned risks, for the main entities.
27/09/2023 | Meeting with financial institutions on the key progress of the work carried out in the MTFS, the objectives of the National Strategy for Sustainable Finance and the main results of the National Survey on Sustainable Finance and Climate Change.

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Other Publications | Sustainable finance and climate-related financial risks

International organizations and forums

G20 Sustainable Finance Working Group (SFWG),G20 Sustainable Finance Roadmap

G20 Sustainable Finance Working Group (SFWG),Progress tracking.Progress reported by countries and other stakeholders in the voluntary implementation of the G20 Roadmap for Sustainable Finance.

Basel Committee on Banking Supervision (BCBS), Principles for the effective management and supervision of climate-related financial risks, June 2022.

Frequently asked questions on climate related financial risks (BCBS),FAQs, December 2022.

Basel Committee on Banking Supervision (BCBS),Climate-related risk drivers and their transmission channels, April 2021.

Basel Committee on Banking Supervision (BCBS),Climate-related financial risks – measurement methodologies, April 2021.

Financial Stability Board (FSB),FSB Roadmap for Addressing Financial Risks from July 2023.

Financial Stability Board (FSB),Supervisory and Regulatory Approaches to Climate-related Risks: Final report, October 2022.

Financial Stability Board (FSB), FSB Roadmap for Addressing Climate-related Financial Risks, July 2021.

Financial Stability Board (FSB),The availability of data with which to monitor and access climate-related risks to financial stability, July 2021.

Financial Stability Board (FSB),The implications of climate change for financial stability, November 2020.

Financial Stability Board (FSB)–Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017.

Network for Greening the Financial System (NGFS),Final report on bridging data gaps, June 2022.

Network for Greening the Financial System (NGFS),Guide for Supervisors: integrating climate-related and environmental risks into prudential supervision, May 2020.

IFRS International Sustainability Standards Board (ISSB),S1 General Requirements for Disclosure of Sustainability-related Financial Information, June 2023.

IFRS International Sustainability Standards Board (ISSB),S2 Climate-related Disclosures, June 2023.