A new hub has been established in Latin America and the Caribbean (LAC) to convene central banks, supervisory authorities, and other public and private financial institutions to develop best practices for managing climate-related risks in the region’s financial systems. The Association of Central Banks of Latin America and the Caribbean (CEMLA), the Association of Supervisors of Banks of the Americas (ASBA), and the Latin American Association of Insurance Supervisors (ASSAL), together with the UN Environment Programme, and with the financial support of the EUROCLIMA+ Programme, have created the Climate Financial Risk Center (CFRCenter) for LAC to promote open discussion, build capacity, and share knowledge and experiences on identifying, assessing, disclosing, and managing climate-related financial risks. The hub was officially launched today at the III Central Banks Conference on Environmental Risk in Mexico City.

LAC is the second most disaster-prone region globally, where climate change impacts are projected to cost US$100 billion per year over the next 30 years (IADB, 2021). The scale of these losses affects both LAC’s macroeconomic prospects and potential financial stability. Although central banks and financial regulators are becoming increasingly more aware of climate-related financial risks, within LAC the implementation of climate regulation and the integration of climate risk insights into financial activities remain at a relatively early stage.

“The new centre addresses the huge challenges central banks and financial supervisors and regulators are facing as they learn how to deal with the  risks of rapid climate change” said Róger Madrigal López, Governor of the Central Bank of Costa Rica.” By providing a forum to share experiences and best practices as well as creating joint standards on how to incorporate climate-related financial risks into our policy frameworks, the centre will help us translate global regulatory and methodological approaches to our local realities” he continued.

The CFRCenter will promote regional convergence and incorporate climate financial risks as a fundamental driver of policy action to maintain monetary and financial stability. The centre will commence its activities in January 2023, developing technical guidance to address identified challenges, providing capacity-building activities to incorporate climate-related risks into policy frameworks, and coordinating the development of methodologies adapted to regional realities. Centre members will learn from global best practices of the Network for Greening the Financial System (NGFS), a collective of central banks from around the world. CFRCenter members will liaise with experts from different NGFS workstreams and others who are setting the standard on leading climate risk management practices.

”We applaud the launch of the CFRCenter as well as its its mandate to address the climate realities in the LAC region through accute region-specific technical support and access to a global network of experts.” said Jean Boissinot , Head of the NGFS Secretariat. ”We are pleased to engage with this effort to drive financial action in addressing the growing threat of climate change in the region.”

At the III Central Banks Conference on Environmental Risk, dozens of senior colleagues from central banks, supervisors, and regulators across the entire LAC region, along with members of the Network for Greening the Financial System (NGFS), Bank of Canada, Bank of England, Banque de France, European Central Bank (ECB), and other leading central banks, held the initial meeting of the CFRCenter. The assembled discussed the workplan and set of priorities for the centre’s first 12 months, focusing on how to incorporate these emerging risks into their mandates, and how to enhance the implementation of climate supervision within their home financial systems.

Mariana Escobar Uribe, Advisor of the Financial Superintendent of Colombia– “The CFRCenter will play a key role in building knowledge and capacity for supervisors and private sector institutions alike on climate stress testing. Its outputs will promote effective climate risk management in financial systems and help finance seize the opportunities that come with building a low-emissions and climate-resilient economy. This could be the first step for countries in the region to begin to understand and learn about different approaches to measuring and managing climate risks,” she continued.