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South Africa – Financial Sector Assessment Program : Technical Note – Climate Risks and Opportunities (Inglês)

This technical note explores the consequences of climate risks and opportunities (CRO) for the South African financial sector. It does so from the perspective of risks for the sector and opportunities for green financial sector development. On the risk side, the note provides a high-level assessment of the impact of climate change and natural disasters, on financial stability and soundness. Moreover, a high-level assessment of the supervisory responses by financial sector regulators is used to provide actionable guidance based on emerging international good practices. The note also explores opportunities for deepening financial markets to mobilize green finance at scale, in line with South Africa’s Nationally Determined Contribution (NDC) to the Paris Agreement and environmental sustainability objectives. The note focuses on both physical and transition risks of climate change, with a primary focus on the banking sector, but also considers impacts on non-bank financial institutions (FIs) and capital markets. Under climate-related risks, both the gradual impacts of climate change and weather-related catastrophes are covered (i.e., physical risks), as well as the risks that arise from the alignment of economies with a 2-degree Celsius goal (i.e., transition risks). These risks can affect the financial system through different channels. Broader environmental risks, whether human-induced (e.g., air, land and water pollution and biodiversity loss) or naturally occurring (e.g. geophysical risks like earthquakes and tsunamis), are not in the scope. However, it should be noted that actions to address climate risks and capitalize on opportunities overlap with approaches for addressing these broader environmental risks and opportunities in the financial sector. The note focuses primarily on banking, but also considers non-bank FI sectors where relevant for prudential supervision and mobilization of capital for green growth.

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