Climate Risk Supervision: A Crucial Issue for the ACPR in 2023

Climate Risk Supervision: A Crucial Issue for the ACPR in 2023

In 2023, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) continued to strengthen its initiatives in sustainable finance and Corporate Social Responsibility (CSR), with a particular focus on the supervision of climate risks. This approach is part of a broader context of heightened awareness of the impacts of climate change on the financial sector and the need to ensure the resilience of institutions in the face of these challenges.

Measures for Supervision and Assessment of Climate Risks

Climate Stress Tests

One of the major initiatives of the ACPR in 2023 was the launch of a dedicated climate stress test exercise for insurers. The goal of this exercise is to evaluate the potential impact of climate risks on insurers’ activities by considering various forward-looking and short-term scenarios. The results of these stress tests are crucial for understanding the vulnerabilities of insurers to climate risks and for guiding future supervisory actions.

Climate Transition Plans

The ACPR has also played an active role in European discussions on climate transition plans. In collaboration with European authorities, the ACPR has contributed to defining the content of these plans and developing an appropriate supervisory framework. The objective is to integrate these plans into prudential regulation and the supervision of banks and insurers, thereby ensuring proactive management of climate risks.

Transparency and ESG Reporting

Reports on ESG Criteria

The transparency of financial institutions regarding their consideration of Environmental, Social, and Governance (ESG) criteria is essential for sustainable finance. The ACPR has supervised insurers’ reports on the integration of ESG criteria, in accordance with Article 29 of the Energy-Climate Law of November 8, 2019. These reports must detail how insurers consider climate and environmental risks in their risk management.

Internal Awareness Initiatives

To promote a culture of climate and environmental risks, the ACPR has created an internal reflection group, the Collective Acting for the Planet (CAP). This working group aims to quickly and widely disseminate knowledge and best practices in climate risk management within the organization.

Challenges and Perspectives

Adaptation of Risk Management Models

The supervision of climate risks and the promotion of sustainable finance pose several challenges. Financial institutions must adapt their risk management models to integrate climate risks, which may require significant investments in resources and skills. This includes sophisticated climate modeling tools and robust data management systems, as well as specific expertise in climatology and green finance.

Quality and Consistency of ESG Reports

Improving the quality and consistency of ESG reports is also essential to ensure effective and useful transparency. Better climate risk management and increased transparency will help better protect investors and the public while supporting sustainability goals.

Conclusion

The year 2023 marked an important milestone for sustainable finance and CSR under the supervision of the ACPR. Initiatives aimed at integrating climate risks into supervision and improving ESG transparency demonstrate a strong commitment to more sustainable finance. The continued efforts of the ACPR and various banking and financial actors will help strengthen the financial sector, making it more resilient and responsible in the face of future climate challenges. These developments are detailed in the ACPR’s 2023 annual report, which highlights efforts to promote sustainable finance and integrate climate risks into financial supervision.