Climate change is no longer a distant environmental concern or a corporate social responsibility issue. For Ghana’s banking sector, it has become a core financial risk, one that directly affects balance sheets, capital adequacy, governance and long-term business sustainability.
Recognising this reality, the Bank of Ghana (BoG), through its Climate-Related Financial Risk Directive, 2024, has made it clear that regulated financial institutions must urgently integrate climate and sustainability risks into their governance, risk management and supervisory engagements. This directive signals a decisive shift in regulation: climate risk is now firmly embedded within prudential supervision.
Board and Governance Responsibilities
At the heart of the BoG’s expectations is governance. Boards and senior management are required to treat climate-related and sustainability risks as financial risks not peripheral ESG or CSR matters. Banks must integrate climate considerations into corporate strategy, risk appetite statements and governance frameworks while assigning clear managerial responsibility for oversight. Climate risk is no longer an operational afterthought. It is a boardroom issue that must influence strategic decision-making at the highest level.
Identifying and Assessing Climate Risk
BoG expects banks to demonstrate a robust understanding of how climate risks affect their portfolios. This includes identifying both physical risks such as floods, droughts, extreme weather and environmental degradation and transition risks arising from policy changes, market shifts, new technologies, legal exposure and reputational pressures. These risks must be assessed across portfolios, sectors and counterparties with particular focus on climate-sensitive sectors including agriculture, forestry, mining, oil and gas, energy, construction, real estate and manufacturing. Supervisors will examine whether banks genuinely understand how climate risks translate into traditional financial risks such as credit, market, liquidity, operational and reputational risks.
Integration into Risk Management Frameworks
One of the clearest regulatory messages is that climate risk must not be treated as a standalone or parallel risk framework. BoG expects full integration into existing enterprise-wide risk management systems, including credit underwriting, portfolio concentration limits, operational risk management, business continuity planning and compliance frameworks. Climate risk must be embedded into how banks already identify, measure, monitor and mitigate risk – not managed in isolation.
Capital Adequacy and ICAAP
Banks are further expected to consider climate-related risks within their Internal Capital Adequacy Assessment Process (ICAAP). This includes assessing whether such risks warrant additional internal capital buffers or specific risk mitigation actions. While BoG has clarified that climate risk will not automatically lead to changes in Pillar 1 capital requirements, supervisors may impose additional capital under Pillar 2 where climate risks are deemed material. Importantly, banks must demonstrate how climate risk affects business model sustainability and long-term capital resilience.
Stress Testing and Scenario Analysis
Forward-looking supervision is a central feature of the directive. Banks are expected to begin incorporating climate scenarios into internal stress testing and supervisory exercises including assessments of extreme weather events and long-term transition pathways. Climate stress testing is viewed not merely as a compliance exercise but as a strategic tool to inform business planning, capital decisions and risk appetite.
Disclosure and Transparency
Transparency is another regulatory priority. Banks must comply with enhanced climate and sustainability reporting requirements, improve data quality and governance and prepare for alignment with international disclosure standards such as IFRS S1 and IFRS S2. Supervisors will distinguish between regulatory disclosures and public sustainability reporting but consistency and comparability of data will be closely scrutinised.
Sustainable Banking Principles
BoG has reaffirmed the importance of the Sustainable Banking Principles including environmental and social risk management, strong governance and ethics, gender equality, financial inclusion, resource efficiency and compliance reporting. Ongoing supervisory dialogue will assess the depth and effectiveness of implementation.
Supervisory Engagement and Enforcement
Climate risk considerations will be embedded into risk-based supervision, onsite examinations, thematic reviews and supervisory review processes. Weak governance, inadequate controls, poor disclosures or ineffective mitigation measures may attract supervisory recommendations or enforcement actions. Climate risk will influence supervisory ratings and follow-up actions.
Building Capacity for the Future
Finally, BoG acknowledges the skills gap across the industry but expects banks to demonstrate steady progress in building internal capacity. Investment in staff training across risk, credit, finance, compliance and ESG functions is no longer optional.
Conclusion
In summary, the Bank of Ghana expects banks to clearly demonstrate that they understand climate and sustainability risks, embed them into governance and risk management frameworks, incorporate them into capital planning and disclose them transparently. Climate risk has moved from the margins to the mainstream of financial regulation. For Ghana’s banking sector, readiness is no longer about future ambition – it is about present compliance and long-term resilience.
About Forth Ghana
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