On 22 Aug 2024, the HKMA shared good practices and key observations on authorized institutions' climate-related risk governance, derived from supervisory exercises under the existing SPM module GS-1. The circular highlights three areas of effective practices: climate strategy development, oversight of climate risk management, and cultivation of climate risk culture. The HKMA emphasized its ongoing supervisory support to address industry challenges in data and modelling while reinforcing adherence to established GS-1 requirements.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 22 Aug 2024, the Hong Kong Monetary Authority (HKMA) issued a circular sharing good practices and key observations on authorized institutions' (AIs) governance of climate-related risks, based on supervisory exercises conducted under the existing Supervisory Policy Manual (SPM) module GS-1.
Background and Context
The HKMA's circular references its SPM module GS-1 (issued December 2021), which provides guidance on climate-related risk management encompassing governance, strategy, risk management, and disclosure. The HKMA adopted a proportionate approach to implementing GS-1 requirements, allowing a 12-month implementation period. The circular does not propose new regulatory requirements but shares observations from supervisory activities, including thematic examinations and consultative sessions, to support AIs in enhancing their climate risk governance frameworks.
Key Good Practices Identified
The HKMA identified three main areas of good practices adopted by participating AIs: (1) Fostering climate strategy development, where AIs set climate goals and targets, conduct strategic assessments, and implement action plans with concrete milestones, supported by regular board/senior management reporting; (2) Exercising oversight of climate risk management, where AIs incorporate climate considerations into risk frameworks, establish qualitative and some quantitative climate risk appetite statements, and deploy tools like climate/ESG risk questionnaires and enhanced due diligence; (3) Cultivating a strong climate risk culture, where AIs embed climate considerations into performance evaluations, remuneration, training, and transparent disclosures aligned with TCFD recommendations.
HKMA's Forward Approach
Recognizing common industry challenges such as insufficient data and modelling difficulties, the HKMA stated it will continue advancing its supervisory approach, including exploring the effective use of data and technology to support AIs in strengthening climate risk management practices. The circular encourages AIs to refer to the good practices outlined in the Annex as they enhance their existing frameworks under the existing GS-1 guidance.
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