January 22, 2025
In November 2024, the Bank of Ghana (BoG) issued the Climate-Related Financial Risk Directive (the CRFR Directive) to ensure that regulated financial institutions (RFIs) such as banks, specialised deposit-taking institutions (SDIs) and non-bank financial institutions (NBFIs) are adequately prepared to manage the financial risks posed by climate change. The directive becomes effective in January 2026 for banks and January 2027 for SDIs and NBFIs.
The CRFR Directive provides RFIs with a structured framework to manage climate-related financial risks effectively, in line with the BoG’s supervisory expectations. It seeks to integrate climate risk management into Environmental, Social, and Governance (ESG) initiatives, ensuring RFIs remain resilient under severe climate risk events and operationally capable of withstanding disruptions caused by climate-related disasters.
- Corporate governance
The CRFR Directive mandates RFIs to integrate climate-related risks into their decision-making processes. The boards of RFIs are tasked with overseeing climate risk strategies and incorporating them into institutional policies, while senior management is responsible for implementing these strategies operationally. Boards and management must also ensure that climate risks are prioritised across all levels of governance and operations.
- Risk management: RFIs must integrate climate-related risks into their enterprise risk management frameworks to identify, assess, and mitigate both physical and transition risks. RFIs are expected to adopt robust tools and metrics for monitoring these risks, ensuring they are accounted for in their overall risk appetite and operational planning. RFIs must evaluate how various climate scenarios could impact their portfolios over short, medium, and long-term horizons. Additionally, RFIs are encouraged to engage with their borrowers and counterparties to assess their climate-related exposures and transition strategies.
- Internal control: RFIs must embed climate-related risks into their internal control frameworks. Internal audits should review governance structures, policies, and processes to ensure effective risk management. RFIs are also required to adjust their anti-money laundering (AML) and countering the financing of terrorism (CFT) measures to address crimes that exacerbate climate risks, such as illegal deforestation, mining, and pollution. These controls will ensure that RFIs are not inadvertently financing activities that contribute to environmental degradation.
- Capital and liquidity adequacy: RFIs must incorporate climate risks into their internal capital adequacy and liquidity assessment processes. This involves quantifying potential impacts on solvency and liquidity under different scenarios, including worst-case conditions. RFIs are encouraged to use stress-testing tools to evaluate their resilience to climate-related shocks.
- Climate-related transition plans: The CRFR Directive requires RFIs to prepare transition plans aligned with national and global net-zero emission targets. These plans must outline clear timelines, actionable strategies, and accountability mechanisms to ensure implementation. Transition plans should reflect board-approved priorities and be integrated into the RFI’s strategic objectives. RFIs are further expected to engage with stakeholders, including borrowers, investors, and regulators, to align their efforts with broader climate goals.
- Disclosure and reporting: RFIs are required to disclose climate-related risks in their annual financial statements. These disclosures must follow international standards, such as IFRS-S2 and ISSB frameworks, and provide comprehensive insights into governance structures, risk management approaches, and progress toward mitigation targets. In addition to the public disclosures, RFIs are mandated to submit semi-annual reports to the BoG detailing material risks, exposure to vulnerable sectors, and mitigation strategies.
Implementation roadmap
RFIs are required to develop and submit an implementation plan detailing their approach to complying with the CRFR Directive. This plan must be approved by the board of the RFI and signed by both its chairperson and chief executive officer.
Banks are required to submit their plans by end of January 2025, while SDIs and NBFIs must submit their plans by the end of June 2025.
Beyond the submission of the plans, RFIs must provide quarterly progress reports to the BoG. These reports should outline the progress made by the RFI in implementing the approved plans.
Banks are expected to submit their first quarterly report for the period ending March 2025, while SDIs and NBFIs must submit theirs for the period ending September 2025. All quarterly reports must be submitted within 14 days after the close of the respective calendar quarter.
Conclusion
The CRFR Directive is an important step in safeguarding the resilience and stability of Ghana’s financial sector against the growing impacts of climate change. As the directive’s implementation progresses, it is crucial for RFIs to approach these requirements proactively, leveraging this framework to build resilience and enhance their contributions to Ghana’s sustainable development goals. This directive provides a unique opportunity for the financial sector to lead in the transition to a low-carbon economy, creating long-term value for stakeholders and ensuring a sustainable and inclusive financial system for future generations.
