← Back to main page 

   

Country: Colombia

Sector: Finance

Expert Partners: Crown Agents Ltd

Improving the understanding of Colombia’s finance sector of the impacts of climate change on institutional practices 

This skill-share helped Colombia’s Central Bank (Banco de la Republica) and the Financial Supervision Authority (Superintendenica Financiera) to identify the channels through which climate risks can affect financial stability in Colombia, and to map these risks on the financial system through a top-down stress testing methodology. 

A series of workshops built awareness of the subject and showed the statistical approaches that could be adopted to perform stress tests on the Colombian financial system. Following a literature review, the experts also recommended the use of information on precipitation to assess the impacts of El Niño on financial stability variables at the national, departmental, and sector levels.

Finally, stress testing methodology  focused on the energy sector was developed with economists from the counterpart institutions, and the financial impacts of adverse climate conditions on firms in the hydroelectric power sector were mapped.

 

 

 

 

——

• The Central Bank and the Financial Supervision Authority worked together to share knowledge and data and commit to a common goal.
• The work on stress-testing for the Colombian context made way for a meeting with the Bank of England, who are leaders in this space, to share progress and exchange ideas.
• This skill-share has developed a granular methodology to assess the climate change risks in the hydropower generation sector.
• The methodology developed and the data gathered will be useful for analysing the effects of physical climate change risks on other economic sectors.
• The results from the different climate change scenarios will be used as a tool to identify physical climate risks (impacts associated with physical damage from environmental disasters) and transition risks (risks associated with the move to a carbon-neutral economy).
• The outcomes of this skill-share are likely to inform new regulations and policies. This will contribute to sustainable finance literature and possibly motivate new research in the field.

 

• The results will support Colombia’s net zero ambitions for the future. When made public, they can help increase awareness about the effects of climate change on the financial system. As a result, more policies to accelerate the transition to a net zero carbon economy may emerge.
• More widely, the work done as part of this skill-share is transferable and relevant to financial institutions around the world.