There is a strong emphasis by the PA to obtain an understanding of where regulated institutions currently stand with regards to climate-related risks. Areas being looked at are their views on climate-related risks, how they are defined within the organisation, how they are expected to impact the organisation and, as a result, how their business model and strategy has evolved.
Annexure A also requires information on how roles and responsibilities have been assigned across board members and committees, and the extent of training and upskilling of key stakeholders within the organisation. Therefore, financial institutions will be expected to show that they have the right skills and competencies in place to govern and manage climate-relates risks.
From a risk management perspective, the PA is looking to get an understanding of how institutions incorporate climate-related risks into their risk appetite as well as across their risk management process (risk identification and assessment, monitoring and response reporting and escalation). Although there is no explicit mention of the ORSA/ICAAP in this GN, given trends we have seen in the UK and EU, we can foresee that the PA will expect to see how climate-related risks are embedded within these risk frameworks in due course.
As expected, scenario analysis is one of the 5 topics under consideration – although, it is unclear whether the PA will run an industry-wide stress-testing exercise similar to what was observed across other jurisdictions. It is encouraging to see that the PA is wanting to engage with financial institutions around the challenges and concerns around scenario analyses. The maturity of scenario analyses in South Africa is still at the beginning stages and there are learnings that can be leveraged from global climate stress testing exercises.
Lastly the PA is also requesting information on internal and external reporting of climate-related risks. They are looking to understand how financial institutions are reporting on climate-related matters internally as well as the climate-related disclosures in use, including which frameworks are being applied to disclose climate-related risks and what type of information is being disclosed. It is encouraging to see that the Green Finance Taxonomy was also mentioned – indicating their consideration of the local sustainable finance reporting landscape and the potential integration and alignment of reporting with this taxonomy. Disclosure of green finance instruments and their allocation is also on their agenda.
