Financial Crime World

Iceland’s Financial Sector Takes Step Towards Climate-Resilient Future

Reykjavik, March 2023

In a significant move towards ensuring the country’s financial stability in the face of climate change, Iceland has adopted a new plan to integrate climate-related financial risks into its regulatory framework.

The Plan

The plan aims to provide periodic updates and better aligns with international standards. There is no specific deadline for implementation, but the move comes as global attention to climate change grows, and financial institutions are increasingly recognizing the need to consider climate-related risks in their operations.

International Support

The International Monetary Fund (IMF) has been working closely with Icelandic authorities to assess the country’s response to these risks. A high-level pilot assessment was conducted during a recent IMF mission to Iceland, which highlighted the need for better supervision and management of climate-related financial risks within the banking sector.

Quote from IMF Spokesperson

“The IMF is committed to supporting countries in their efforts to build resilience to climate change,” said an IMF spokesperson. “We believe that integrating climate-related financial risks into regulatory frameworks will help ensure the stability of the financial system and support sustainable economic growth.”

International Standards

The Basel Committee on Banking Supervision (BCBS) has also played a key role in developing international standards for supervision and disclosure of climate-related financial risks. The BCBS issued its “Principles for the Effective Management and Supervision of Climate-Related Financial Risks” in 2022, which provides guidance to banks and regulators.

Iceland’s Progress

Iceland’s authorities are well-placed to benefit from these international efforts, with the country already making significant progress on climate change mitigation. The European Union (EU) has also been actively promoting financial regulation and supervision that takes into account environmental, social, and governance (ESG) risks, including climate-related financial risks.

Key Points

  • Iceland’s Central Bank has already taken steps to incorporate climate-related financial risks into its supervisory framework.
  • The government is working to develop a comprehensive plan for managing these risks.
  • The IMF assessment noted that while there is still work to be done in Iceland, the country’s authorities are committed to building a more resilient financial system.

Conclusion

As the global community continues to grapple with the challenges posed by climate change, Iceland’s commitment to addressing climate-related financial risks sends a strong signal that the country is serious about building a sustainable future.