BoG Issues New Directive Mandating Financial Institutions to Address Climate-Related Financial Risks; Sets Dec. 2025 Deadline for Banks
The Bank of Ghana has given commercial banks in the country up to December 31, 2025, to align their governance arrangements, risk management frameworks, and internal policies and processes with the requirements of its Climate-Related Financial Risk Directive.
For Specialised Deposit-Taking Institutions (SDIs) and Non-Bank Financial Institutions (NBFIs), the Central Bank has given a deadline of December 31, 2026, to comply with the Directive.
Implementation of the Directive, the Central Bank further notes, takes effect on January 1, 2026, in the case of banks, and January 1, 2027, in the case of the SDIs and NBFIs.
According to the Bank of Ghana, the Directive is pursuant to section 92(1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), section 84 (1) of the Development Finance Institution Act, 2020 (Act 1032) and section 44(1) of the Non-Bank Financial Institution (NBFI) Act, 2008 (Act 774) and shall apply to Banks, Specialised Deposit-Taking Institutions (SDIs), Financial Holding Companies, Mortgage Finance Companies, Leasing Companies and Development Finance Institutions collectively referred to as “Regulated Financial Institutions” (RFIs).
The Apex Bank, by the issuance of this Directive, asserts that it recognizes that Regulated Financial Institutions (RFIs) are potentially exposed to climate-related financial risks regardless of their size, complexity, or business model and that climate-related financial risk drivers can translate into traditional financial risk categories including credit, market, liquidity, and operational risks.
“RFIs shall therefore consider the potential impacts of climate-related risk drivers on their individual business models and assess the financial materiality of these risks.
“RFIs are also expected to manage their climate-related financial risks in a manner that is proportional to the nature, scale, and complexity of their activities and the overall level of risk that it is willing and able to accept,” the BoG posited.
The objectives of the Directive the BoG notes, is to ensure that Regulated Financial Institutions (RFIs):
a) understand and mitigate against potential impact of climate-related financial risks on their business model and strategy;
b) implement appropriate governance and risk management practices to effectively identify and manage climate-related financial risks;
c) remain financially resilient under severe, yet plausible, climate risk events, and operationally resilient to disruptions due to climate-related disasters;
d) integrate the management of climate-related risks into their Environmental, Social and Governance (ESG) initiatives which have a significant bearing on corporate investment decision-making processes;
e) address any weaknesses in the management of material climate-related physical and transition risks that can adversely impact safety and soundness as well as the stability of the overall financial system;
f) understand BOG’s supervisory expectations on the approach that should be taken in the management and disclosure of climate-related financial risks; and
g) disclose the impact of climate-related financial risk drivers (physical and transition risks) on risk management, strategy, governance and regulatory capital to enhance market discipline.
“The Directive is particularly aimed at creating transparency regarding BOG’s view on a prudent approach to the management and disclosure of climate-related financial risks,” the Bank added.
The Climate-Related Financial Risk Directive sets out the supervisory expectations for RFIs in relation to the approach to management and disclosure of climate-related financial risks with a focus on corporate governance, internal control framework, assessment of the adequacy of capital and liquidity, risk management process, management monitoring, and reporting, comprehensive management of specific financial risks, scenario analysis, and disclosures.
Consequently, the Directive aligns with goals to address climate change mitigation and adaptation in line with Ghana’s Nationally Determined Contributions (NDCs) to the Paris Agreement.
In applying this Directive, RFIs are expected to take into consideration the unique characteristics of climate-related financial risks, including but not limited to potential transmission channels, the complexity of the impact on the economy and financial sector, uncertainty related to climate change and potential interactions between physical and transition risks, and the extended period of time to which such risks could materialize.
