IMF urged to enhance climate surveillance

Academics have called on the International Monetary Fund (IMF) to enhance its surveillance of climate-related risks, after a study of its reports showed that coverage has been patchy and inconsistent.

The IMF works with countries on a bilateral basis to review the state of their economies and financial systems, and to provide recommendations on how it believes policymaking can be improved. It does this mainly through activities known as Article 4 reports and Financial Sector Assessment Programmes (FSAPs).

An analysis led by researchers from Boston University Development Center found that between 2017 and 2021, IMF surveillance activity paid little and uneven attention to climate risks in Article 4 reports, and even less so in FSAPs.

“The IMF, as a safeguard of monetary and financial stability, should incorporate climate risks cohesively and comprehensively into its analysis, including spillover or the cross-border consequences of climate change, and reallocate its tools and resources to this end,” say the academics, writing in the paper published in Climate Policy journal.

In a review of its surveillance activities last year, the IMF acknowledged that the physical and transition risks associated with climate change are likely to be macro-critical, and therefore fall firmly within the fund’s mandate. It said it expected to increase the coverage of such risks, and that they would feature in around 60 Article 4 reports each year.

It also said it would monitor and report on the mitigation efforts of the 20 largest greenhouse gas emitting countries, roughly every three years.

A review of FSAP reports published over the last six months, available on the IMF website, presents a mixed picture. There is some evidence of increased prominence being given to climate risk issues; for example UK authorities are urged to enhance the development of their analytical toolkit, and South Africa is advised to step up its climate stress-testing regime. But the FSAP report for Georgia, published in September 2021, gives no mention of how well financial supervisors are addressing climate risk, despite identifying climate-related natural disasters as a key threat to the country.

In a related move, the IMF recently pledged to redouble its efforts to build the capacity of central banks and supervisory authorities towards addressing climate-related financial risks. It said it would focus its efforts on low-income countries and small states, reflecting both the need for those countries to bolster their capacity, and the fact that they tend to be disproportionately affected by climate change.