A Practical Guide to the Bank of Ghana Climate-Related Financial Risk Directive, 2024

Why This Directive Matters

In November 2024, the Bank of Ghana (BOG) issued a landmark directive requiring banks, Specialised Deposit-Taking Institutions (SDIs), Financial Holding Companies, Development Finance Institutions, Mortgage Finance Companies and Leasing Companies — collectively “Regulated Financial Institutions” (RFIs) — to systematically identify, manage and disclose climate-related financial risks.

This is not an environmental policy. It is a prudential risk directive. BOG’s concern is that climate change transmits into the traditional risk categories supervisors already care about — credit, market, liquidity and operational risk — and that RFIs which ignore this exposure could face solvency and stability problems. This guide translates the directive into a practical roadmap for compliance teams, risk managers and boards.

1. Who Must Comply and When
   

   The directive applies to all RFIs, but implementation is staggered by institution type:

   Requirement	Banks	SDIs & NBFIs
   Board-approved implementation plan submitted to BOG	End January 2025	End June 2025
   Governance/risk frameworksaligned to Directive	31 December 2025	31 December 2026
   Quarterly progress reports begin	Quarter ending March 2025	Quarter ending September 2025
   Directive fully effective	1 January 2026	1 January 2027
   First climate disclosures (IFRS S2-aligned)	December 2026	December 2027
   First climate-related transition plan submitted	December 2026	December 2027

   Practical takeaway: Even though “full effectiveness” feels distant, the clock on visible compliance starts almost immediately — an implementation plan signed by both the Board Chair and CEO is due within weeks of a bank engaging with this directive, followed by quarterly reporting to BOG.

2. Understanding the Two Risk Types You Must Manage

   Everything in the directive flows from two categories:

   • Physical risks — losses from acute events (floods, wildfires, storms, landslides) and chronic shifts (rising temperatures, changing rainfall, sea level rise).

   • Transition risks — losses arising from the shift to a low-carbon economy: policy changes (carbon taxes, emissions caps), technology shifts (stranded assets) and changing investor/consumer sentiment.
     These drivers don’t create new risk categories on your balance sheet — they amplify existing ones:

   • Credit risk: A flooded factory can’t repay its loan (income effect); its collateral is now worth less (wealth effect).

   • Market risk: A carbon tax reprices high-emission corporate debt and equities you hold.

   • Liquidity risk: A climate disaster triggers a surge in withdrawals and emergency credit demand simultaneously.

   • Operational risk: Extreme weather disrupts your own branches, data centres or key service providers.

   • Practical takeaway: Don’t build a parallel “climate risk” silo. Integrate climate risk drivers into your existing credit, market, liquidity and operational risk frameworks and models.

3. Governance: What Your Board Actually Needs to Do

   BOG is explicit that climate risk oversight sits with the Board and Senior Management, not just a sustainability officer. Concretely, you need to:

   1. Adopt board-approved climate risk strategies and policies, with senior management responsible for implementation.

   2. Embed climate risk into your Risk Appetite Statement (RAS) — including quantitative/qualitative targets, tied to risk limits.

   3. Assign clear roles across the Three Lines of Defence

   4. Designate a Key Management Personnel responsible for climate-related financial risk oversight (where feasible).

   5. Build board and staff capacity — ongoing training is an explicit expectation, not a one-off.

   6. Strengthen AML/CFT controls to ensure the bank isn’t financing environmental crimes (illegal mining, logging, waste dumping).

   • First line: business units factor climate risk into onboarding, credit decisions, ongoing monitoring.

   • Second line: risk management and compliance functions set standards and monitor.

   • Third line: Internal Audit independently reviews the adequacy of the whole framework.

   Practical takeaway: Prepare board meeting minutes, committee terms of reference and training records that evidence climate risk oversight — these are exactly what BOG and your auditors will ask to see.

4. Capital, Liquidity and Risk Management Process

   ICAAP/ILAAP Integration

   RFIs must incorporate material climate risks into their Internal Capital and Liquidity Adequacy Assessment Processes, over a minimum 3-year horizon, covering both business-as-usual and stressed conditions. Your ICAAP submission should show:

   • Assessment methodology and assumptions used

   • Where human judgment substituted for hard data

   • Proxies used to fill data gaps

   • Stress test results and methodology

     Scenario Analysis

     Use the NGFS reference scenarios (Annex I of the directive) as a starting point, supplemented with Ghana-specific and institution-specific scenarios:

     NGFS Category	Scenarios	Character
     Orderly	Net Zero 2050, Below 2°C	Early, stringent, coordinated policy
     Disorderly	Divergent Net Zero, Delayed Transition	Late or uneven policy — higher transition risk
     Hot House World	Current Policies, Nationally Determined Contributions	Policy failure — severe physical risk, low transition risk

     Where data is thin (common in Ghana’s context), qualitative scenario analysis is an acceptable minimum — you are not required to have a fully quantified model on day one.

     Data and Tools

   • Build a framework to collect geophysical exposure and GHG emissions data.

   • Where gaps exist, document your plan to close them and the interim proxies used.

   • Understand the assumptions and limitations of any third-party climate risk tools/models you adopt — don’t treat vendor models as a black box.

     Practical takeaway: Start with a gap analysis of what climate-relevant data you already hold (property locations, sector exposure, collateral types) before investing in expensive new systems.

5. Disclosure Requirements

   RFIs must publish climate-related disclosures aligned with IFRS S2 (issued June 2023 by the ISSB), structured around four pillars:

   1. Governance — who oversees climate risk, how the board is informed, what skills exist.

   2. Strategy — impact on business model, financial position, and cash flows across short/medium/long-term; transition plan summary.

   3. Risk Management — how climate risks are identified, prioritised, and integrated into overall risk management.

   4. Metrics and Targets — quantitative indicators (see table below), with progress tracked against targets.

   Sample Disclosure Metrics (from the Directive)

   Category	Example Metrics
   Transition risk	Credit exposure concentration in carbon-intensive sectors; real estate collateral exposed to transition risk
   Physical risk	% of assets in 100-year flood zones; property/infrastructure exposed to flooding, heat, or water stress
   Opportunities	Revenue from lower-carbon products/services
   Capital deployment	% of revenue invested in low-carbon R&D or climate adaptation

   Disclosures go into your Annual Report and Audited Financial Statements, using a standardized template BOG will issue (developed with the Institute of Chartered Accountants, Ghana).

   Practical takeaway: IFRS S2 disclosure isn’t due until December 2026 (banks) / 2027 (SDIs/NBFIs) — but semi-annual regulatory reporting to BOG on climate risk exposure starts much earlier, so build your data pipeline now rather than at the disclosure deadline.

6. Regulatory Reporting to BOG

   Separate from public disclosure, RFIs must report to BOG semi-annually (or whenever material changes occur) on:

   • Material climate risks identified and how governance/strategy address them

   • Exposure to carbon-intensive and vulnerable sectors/geographies

   • Internal decarbonisation commitments and climate requirements imposed on borrowers

   • Stress testing scenarios, assumptions and results

   • Data gaps and remediation plans

7. Climate-Related Transition Plans

   By December 2026 (banks) / 2027 (SDIs/NBFIs), each RFI must submit a credible transition plan covering:

   1. Transition strategy — net-zero objectives, interim/long-term targets, financing approach.

   2. Implementation strategy — products supporting client transition, internal policy on priority/high-risk sectors.

   3. Metrics and targets — e.g., forecasted exposure to non-carbon-intensive borrowers.

   4. Engagement strategy — with counterparties, peers and government.

   5. Governance and accountability — board responsibility, staff training, possible link to remuneration.

   6. Other information — key assumptions, dependencies and sensitivity analysis.

      Practical takeaway: This is a living document, not a one-time filing — BOG expects institutions

      to demonstrate its appropriateness “on an ongoing basis.”

8. A Suggested Implementation Roadmap

9. Common Pitfalls to Avoid
   • Treating this as a “sustainability” project rather than a prudential risk requirement owned by the CRO/risk function.
   • Waiting for perfect data before starting — the directive explicitly allows proxies, qualitative analysis and progressive maturity of methods.
   • Ignoring proportionality — BOG will assess your framework relative to your size, complexity, and risk profile, not against a one-size-fits-all standard. Don’t over engineer if you’re a small SDI.
   • Siloing climate risk from existing credit/market/liquidity/operational risk processes.

   • Missing the early deadlines — the board-approved implementation plan and quarterly updates start well before the “effective date,” and are the first thing BOG will check.

Key Takeaway

The directive’s core message is simple: climate risk is financial risk and BOG expects it to be managed with the same rigor as any other material risk — governed by the board, embedded in risk appetite and capital planning, stress-tested and disclosed transparently. Institutions that start early with governance, data-gap analysis, and qualitative scenario work will find the 2026/2027 deadlines far less daunting than those who wait.

This guide summarizes the Bank of Ghana Climate-Related Financial Risk Directive (November 2024) for practical reference. It is not a substitute for legal or regulatory advice — RFIs should consult the full directive text and their compliance/legal advisors when implementing these requirements.