Sustainability – as a concept – has been traced back to the United Nation’s Brundtland Report in 1987 aptly themed “Our Common Future”. Fast forward more than three decades, a question arises - how can Deposit Insurers (DIs), resolution authorities and insurance guarantee schemes (IGS) help tackle climate-related risks to safeguard financial stability?
On 30 March 2021, PIDM organised a webinar in collaboration with the Korea Deposit Insurance Corporation (KDIC). Themed “A Race Against Time – Climate-Related Risks and Financial Stability Implications”, the webinar discussed the complex nature of climate-related risks and practical steps that can be taken to overcome challenges. 160 participants from 34 organisations globally streamed in, comprising DIs from the International Association of Deposit Insurers (IADI) Asia-Pacific Regional Committee (APRC), members of the International Forum of Insurance Guarantee Schemes (IFIGS), as well as multilateral institutions.
Climate-related risks in the form of physical, transition or liability risks, have far-reaching consequences with unpredictable impact on financial systems. This should spur urgent, sustained and collective action to tackle such risks over the medium to long term by financial safety net players domestically and co-operating across borders. These views - by Seongbak Wi, Chairperson of the APRC and President of KDIC, and Rafiz Azuan Abdullah, Chief Executive Officer of PIDM - served to frame the broad context of the webinar.
The webinar featured a moderated discussion among four panellists. Different perspectives were presented on the strategic overview of climate-related risks and key challenges, the role of central banks, implications on deposit insurers, and the assessment of climate risks in the insurance sector.
Issues discussed include the potential adverse impact of climate-related risks on the resilience of financial systems, especially given the reinforcing nature of interactions between the banking and the insurance sector (see below on the transmission channel between the two sectors).
DIs could consider responses to these risks in the areas of risk monitoring, funding, differential (risk-based) premium systems, operations, investment and management of DI funds, and the resolution of troubled banks. The panel also noted the promising progress made by ASEAN Central Banks, including the development of a regional taxonomy for sustainable finance
. For the insurance sector, the aspects of policies, regulatory requirements, and assessment models were considered. The final Q&A segment saw the panellists and audience interact on actions to build climate awareness among the financial industry and stakeholders, concerns surrounding data and measurement of risks, policy trade-offs and other issues.
In conclusion, the topic of climate related-risks in the financial sector is expected to grow in breadth and depth. Moving forward, discussions would include practical actions that can be taken by DIs and IGS’ - strategically aligned along the nexus of financial sector participants, national strategies and global initiatives - to address concerns on financial stability. An organisational roadmap could be adopted, beginning from the base of self-assessments, to articulating green outcomes, to building intellectual capabilities, and establishing collaborative networks.
From top left: Mr Seongbak Wi (Chairman and President, KDIC and Chairperson of IADI APRC), Mr. Rafiz Azuan Abdullah (CEO, PIDM and Chairperson of IADI APRC Research Technical Committee), Mr. Raja Syamsul Anwar (Director, International Department, Bank Negara Malaysia), Ms. Afiza Abdullah (General Manager, Policy & International, PIDM and First Vice Chair of IFIGS, Mr. Mark Lee (Head, Strategic Partnership and Applied Research, PIDM), Dr. Bert Van Roosebeke (Senior Policy and Research Advisor, IADI), Mr. Jeffery Yong (Senior Advisor, Financial Stability Institute, Bank for International Settlements), Mr. Joseph Noss (Secretariat, Financial Stability Board).