Frequently asked questions on climate-related financial risks

Banking Policy Department
Our Ref: B1/15C
B9/197C
B4/1C
B4/9C
12 January 2023
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Frequently asked questions on climate-related financial risks The Basel Committee on Banking Supervision (BCBS) has recently issued responses to a number of frequently asked questions (FAQs) to clarify how climate-related financial risks may be captured in the existing Basel Framework1 . The responses to FAQs are intended to facilitate a globally consistent interpretation of existing Pillar 1 standards given the unique features of climate￾related financial risks and should not be interpreted as changes to the standards. The responses are consistent with the BCBS’s Principles for the Effective Management and Supervision of Climate-related Financial Risks 2 . Areas covered in the FAQs include:
(1) Calculation of risk-weighted assets (RWA) for credit risk; (2) Calculation of RWA for operational risk; (3) Calculation of RWA for market risk; and (4) Liquidity Coverage Ratio. The HKMA intends to incorporate the responses to the FAQs into our supervisory framework. Authorized institutions should take note of them when considering how to incorporate climate-related financial risks in their interpretation and application of the existing Basel Framework. 1 Please see https://www.bis.org/bcbs/publ/d543.htm 2 Please see https://www.bis.org/bcbs/publ/d532.htm

2
Should you have any questions, please contact Mr Willy Mak (2878-1219) or Mr Roy Chan (2878-8717). Yours faithfully, Daryl Ho Executive Director (Banking Policy) cc: The Chairperson, The Hong Kong Association of Banks The Chairperson, The DTC Association FSTB (Attn: Mr Justin To)