FSB launches climate risk consultation

April 29, 2022|Written by Graham Caswell|Bank of England, European Central Bank

The Financial Stability Board (FSB) has launched a public consultation on supervisory and regulatory approaches to climate-related risks, seeking feedback on a report outlining approaches to climate-related financial supervision and regulation.

Aimed at promoting consistent approaches across sectors and jurisdictions, the consultation will be open until 30 June 2022 with the results of the exercise being available by the end of the year.

Established by the G20 in the aftermath of the 2008 financial crisis, the FSB is an international body that monitors and makes recommendations about the global financial system with the goal of protecting the stability of international financial markets.

The initial recommendations of the FSB focus on three areas: reporting and collection of climate-related data; system-wide supervisory and regulatory approaches to assessing climate-related risks; and other potential macroprudential policies and tools to address systemic climate risks to financial stability.

A series of recommendations are offered in each of these areas, including a call to expand the use of climate scenario analysis and stress testing, and global coordination and cooperation towards common regulatory reporting frameworks.

The report also recommends that financial supervisors accelerate identification of their climate-related information needs and to consider the need for third-party verification to strengthen the reliability of climate-related data. It calls on authorities to ask financial institutions to report qualitative information, and to use proxies or estimates where full information is not available.

Microprudential tools alone are not sufficient to address the cross-sectoral, global and systemic dimensions of climate-related risks, the report says, offering a review of “early thinking” by standard-setting bodies and authorities on macroprudential policies. The European Central Bank and the European Systemic Risk Board’s examination of climate-related systemic risk buffers is given as an example, along with the Bank of England’s exploration of possible adjustments to capital adequacy requirements.

The FSB is inviting comments on its recommendations and includes a set of questions for participants in the consultation.

This page was last updated April 29, 2022

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