Asia-Pacific Regulators Integrate Climate Risks into Financial Frameworks

In a significant move towards addressing the pressing challenges posed by climate change, regulators and supervisors across the Asia-Pacific (APAC) region are increasingly integrating climate-related risks into their financial regulatory frameworks. A recent policy brief published by the United Nations Environment Programme Finance Initiative (UNEP FI) highlights the ongoing trends within various jurisdictions in the region, underscoring the essential role that financial regulators play in ensuring economic stability amid rising climate concerns.

As outlined in the report titled "Climate-related Risks in Financial Regulation and Supervision in APAC: A Policy Landscape Analysis," the report reveals how central banks and banking supervisors are aligning their prudential regulations with climate action objectives. This integration is particularly crucial for the APAC region, which is highly vulnerable to the impacts of climate change, such as extreme weather events and rising sea levels. The findings of the report are timely, as they come amidst increasing recognition that climate-related risks can adversely affect financial stability, economic growth, and overall social welfare.

The policy brief, released on June 18, 2025, emphasizes that jurisdictions within APAC vary in their regulatory approaches. Countries like Malaysia, the Philippines, Singapore, and New Zealand have explicitly included sustainability within their central banking mandates. In contrast, other jurisdictions such as mainland China, South Korea, Thailand, and Indonesia incorporate sustainability-related objectives more implicitly.

Notably, central banks such as the Hong Kong Monetary Authority and Japan's Financial Services Agency are already conducting climate-focused macroprudential exercises. These exercises include climate stress testing and scenario analysis to evaluate potential impacts of climate change on financial institutions. As of the report's publication, all twelve jurisdictions analyzed have engaged in or are in the process of conducting these critical exercises.

This proactive stance is mirrored in the alignment with the Basel Committee on Banking Supervision’s three-pillar framework for financial regulation. Under Pillar 2, which focuses on supervisory review, numerous authorities are integrating climate considerations into their risk governance expectations, internal capital assessments, and supervisory dialogues. Progress is also noted under Pillar 3, where there is a growing emphasis on enhancing transparency through climate-related disclosures.

However, the report indicates that work under Pillar 1, which pertains to the minimum capital requirements, is still in its nascent stages, as regulators and the Basel Committee assess how to effectively account for climate-related financial risks.

Laura Canas da Costa, Global Policy Co-Lead at UNEP FI, noted, "Overall, a broader and deeper integration of climate considerations into prudential frameworks is emerging. This can support more climate-resilient financial systems and encourage capital flows towards sustainable activities to support the climate transition."

The analysis further highlights that prudential regulations should not function in isolation. A cohesive approach involving a supportive policy environment is crucial for the success of sustainable finance taxonomies, corporate disclosures, and due diligence frameworks. The report concludes that as APAC's climate-related prudential regulations evolve, there is a discernible trend towards stronger mandates and greater alignment with international frameworks. This evolution is pivotal for ensuring that the financial sector can effectively contribute to the low-carbon transition while maintaining stability and promoting sustainable economic growth.

In summary, the report from UNEP FI reflects a significant shift in how financial regulators in the Asia-Pacific are responding to climate risks. The ongoing integration of these risks into regulatory frameworks is expected to play a vital role in shaping the future landscape of sustainable finance, ultimately enhancing resilience in the face of escalating climate challenges.