Role of central banks in climate risk analysis and management

Introduction. The article provides a comprehensive overview of regulators’ approaches to climate risk management that have a notable impact on financial stability, and the current state of climate risk management in Ukrainian banks. Problem Statement. The analysis of the climate risk management frameworks established by central banks. Purpose – to highlight the impact of climate risks on financial stability and analyze approaches of European central banks to their assessment and management, and to outline possible National Bank of Ukraine’s (NBU) approaches to future management of those risks. Methods. General scientific analysis and synthesis, normative analysis, comparison, systemic and interdisciplinary approach were used. Results. The essence of climate risks impact on the financial system is disclosed. The international experience in assessing climate risks is analyzed, with particular emphasis on the leading role of central banks, and the sequence of their steps to analyze the risks is outlined. The EU’s progress in managing climate risks is presented as a benchmark for Ukraine. Domestic financial sector is at the initial stage of managing such risks, and although certain steps have been taken at the state, regulatory, and bank levels, the integration of climate risks lacks systematicity. Conclusions. Climate risks are becoming an integral factor of financial stability, thus requiring an active role for central banks in ensuring management thereof. The steps taken by central banks to analyze and manage these risks occur in a certain sequence. The EU developed advanced practices that Ukraine will gradually implement. The National Bank of Ukraine (NBU) will enhance its analysis and regulatory framework to facilitate the incorporation of climate risks management into banking business models.