Circular CSSF 21/773 is a CSSF circular on the Management of Climate-related and Environmental Risks, published 21 June 2021.
\nLegal basis: Law of 5 April 1993 on the financial sector.
\nRelevant for: Credit institutions.
\nMain topic: Sustainable finance. Keywords: Internal governance, Risk management.
\nCSSF CIRCULAR 21/773
\nIntroduction
\nLuxembourg 21 June, 2021
\nall
\ncredit
\ninstitutions
\ndesignated
\nSignificant
\nInstitutions
\nunder
\nthe
\nLess Single
\nSupervisory Mechanism and to all branches of non-EU credit institutions
\nrisks and
\nincrease
\nawareness of members of the
\nmanagement body and institutions’ staff about these risks. 3. It describes how the CSSF expects credit institutions to consider and integrate into their operations climate-related and environmental risks, as drivers of existing categories of risks. These expectations are most relevant when credit institutions formulate and implement their business strategy, governance and risk management frameworks. They are part of the wider regulatory developments regarding sustainability considerations. The expectations in this Circular are consistent with the ECB’s “Guide on climate-related and environmental risks” dated November 2020 and the “Guide for Supervisors: integrating
\nclimate-related
\nand
\nenvironmental
\nrisks
\ninto
\nprudential
\nsupervision” published in May 2020 by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). 4. Article 5 of the Law of 5 April 1993 on the Financial Sector provides that credit institutions shall have robust governance arrangements, including effective processes to identify, manage, monitor and report the risks to which they are or might be exposed to. Credit institutions shall consider the extent to which their current management practices for climate-related and environmental risks are safe and prudent, taking into account the guidance set out in the Circular. 5. The CSSF will continue to develop its supervisory approach to climate-related and
\nenvironmental
\nrisks
\nover
\ntime,
\ntaking
\ninto
\naccount
\nregulatory
\ndevelopments at an international level as well as evolving practices in the industry and in the supervisory community.
\nCSSF CIRCULAR 21/773
\nScope of application 6. The Circular applies to all credit institutions designated as Less Significant Institutions under the Single Supervisory Mechanism 1 and to all branches of non-EU credit institutions (hereafter “Institutions”). 7. While the CSSF recognises the challenges that smaller Institutions may face in assessing the impacts of climate-related and environmental risks, it should be stressed that the size of an Institution does not directly determine or correlate to the material nature of the risks that it faces. Institutions shall duly consider the expectations in the Circular in a proportionate manner, taking into account the materiality of their exposure to risks arising from climate change and other environmental factors.
\nDefinitions 8. Climate change and environmental degradation are sources of structural change that affect economic activity and, in turn, the financial system. Climate-related and environmental risks are commonly understood to comprise two main risk drivers 2: 9. Physical risk refers to the financial impact of a changing climate, including more frequent extreme weather events and gradual changes in climate, as well as of environmental degradation, such as air, water and land pollution, water stress, biodiversity loss and deforestation.
\nThe text above is the opening of the document; the PDF carries the whole.
\nDocument page, PDF. Source: Commission de Surveillance du Secteur Financier (CSSF), reproduced with the CSSF's consent. The French text prevails.
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