The Bank of Japan (BOJ) has said it will look at climate change risks during its bank examinations for the year beginning in April.
The bank will check financial institutions’ preparations for addressing risks associated with climate change.
“The BOJ will examine the role of climate change issues ... and financial institutions’ efforts in these areas,” it said.
Bank of Japan Governor Haruhiko Kuroda said: “I have a major interest in how the entire financial system deals with climate change risk.”
He said there are two major risks that climate change poses to industry.
One is the physical risk of natural disasters, such as flooding, which can damage plants and factories, and the other is a transitional risk that will arise “when changing toward an economy that emits lower volumes of carbon dioxide”.
Kuroda said financial institutions are more vulnerable to transitional risk.
The aim of this is to exchange views with major banks that are already analysing how their business could be affected by climate risks.
Japan’s central bank conducts hearings and on-site monitoring in voluntary examinations on financial institutions but it does not have regulatory authority, which falls under the Financial Services Agency (FSA).
Its periodic on-site examinations of financial institutions will now also be used for studying how global warming and Japan’s aim to become a carbon-neutral society could affect company management.