Climate-Related Financial Risks Workshop

“Climate-related financial risks have the potential to affect the safety and soundness of banks…”

The World Bank and the Bank of Mauritius hosted a workshop on Climate-Related Financial Risks for banking institutions. The event provided a forum to share international practices and the latest developments in climate risk management, highlighting the importance of addressing the country’s development objectives by integrating climate actions in the financial sector.

Climate-related and environmental risks warrant negative attention, but they also provide new green finance opportunities: the financial sector will have an important role in mobilizing a significant part of the $6.5 billion Mauritius has estimated as its climate finance needs for the next six years. 

The Bank of Mauritius’ Second Deputy Governor, Hemlata Sadhna Sewraj-Gopal, underlined that “climate-related financial risks have the potential to affect the safety and soundness of banks through physical and transition risks, and hence the financial stability of the economy. This is why the Bank of Mauritius launched its Climate Change Centre in October 2021 to support the financial sector’s climate agenda. This workshop has enabled all participants to benefit from insights and unique perspectives that will help stakeholders elaborate the most relevant strategies to face climate and sustainability-related challenges.”

“We believe that the development of a climate-responsive financial sector in Mauritius starts with a comprehensive capacity-building program for public institutions, as well as for the private sector,” said Brinda Dabysing, World Bank Senior Financial Sector Specialist. “Another important aspect is setting up a platform for effective stakeholder engagement – enabling broad inputs and transparent communication – that will promote trust, ownership, and more effective action on the ground.” 

Climate change poses material risks to the safety and soundness of financial institutions and has broader implications for financial stability. Around the world, central banks and supervisory authorities have started exploring climate-change-related financial stability risks.

At the COP28 in Dubai in December 2023, the World Bank announced an ambitious financing package to help people in developing countries better withstand the devastation of climate change and create a better world for future generations. The World Bank is the largest financier of climate action in developing countries, delivering $38.6 billion in climate finance in the 2023 financial year, a 22% increase compared to the previous year.

The World Bank has been supporting the central bank for the past five years through technical assistance to build a stronger supervisory regime more responsive to risks

The institution plays a vital role in helping countries prepare for a low-carbon, resilient transition, enabling them to build green, resilient, and inclusive economies.  However, as public finance will not be enough, countries need to tap into new revenue sources from the private sector. In turn, the private sector needs to find an enabling environment for critical climate investments.  

The broader financial sector is key in mobilizing capital for green and low-carbon investments and managing climate risks. The World Bank will support greening the financial sector through its work with central banks, national development banks, and private sector financial institutions. It will also help countries to change regulations and policies so that the financial sector catalyzes low-carbon, sustainable investment in the real economy.

“We are pleased to continue our longstanding collaboration with the Bank of Mauritius as it pursues its climate actions,” said Krishnamurthi Damodaran, World Bank Senior Financial Sector Specialist. “The World Bank has been supporting the central bank for the past five years through technical assistance to build a stronger supervisory regime more responsive to risks. On the green agenda, the World Bank can deepen its engagement in various areas: conducting climate risk assessments; supporting central banks and financial regulators in integrating climate-related considerations into supervisory and regulatory frameworks; and developing climate-responsive capital market instruments.” 

 “Climate and environmental events are changing how banking institutions address financial risks. Under the guidance of the Bank of Mauritius, banks have embarked on a journey to adopt an Environmental, Social, and Governance roadmap and integrate climate-related risks into their operations,” said Daniel Essoo, CEO of the Mauritius Bankers Association. “The Mauritius Bankers Association welcomes this event by the Bank of Mauritius and the World Bank as a stepping stone to exchange ideas and work together on a harmonized approach for the industry.”