Progress made on FSB roadmap but more disclosures and data needed

Progress has been made on addressing climate-related financial risks, even as global climate-related risks become more common, the Financial Stability Board announced ahead of the G20 meeting earlier this month.

“A manifestation of physical risks as well as a disorderly transition to a low-carbon economy could have destabilising effects on the financial system, such as a rise in risk premia and falling asset prices,” the FSB stated in its annual progress report.

The FSB found that progress has been made across all four areas of its roadmap: firm-level disclosures, data, vulnerabilities analysis, and regulatory and supervisory practices and tools.

The sustainability disclosure standards published by the International Sustainability Standards Board (ISSB) earlier this month are a substantial achievement, the FSB stated. The ISSB will take over the Task Force on Climate-related Financial Disclosures to monitor the FSB roadmap from 2024.

One of the key priorities for disclosures is for the International Organisation of Securities Commissions to endorse the standards so it can be used across jurisdictions, the FSB said. In addition, regulators should develop a global assurance framework for sustainability-related corporate reporting and promote interoperability to avoid double reporting.

Work continues to be made on improving climate data across borders, but a global repository should be developed to provide open access to data, the FSB said. In addition, metrics need to be developed to measure climate-related risks.

More work also needs to be done regarding embedding climate scenarios when monitoring financial vulnerabilities. Doing so would help understand the cross-border and cross-sector transmission of climate shocks, the report stated.

Lastly, including climate-related risk into risk management remains an important focus, with a growing interest in the role of transition plans to not only facilitate an orderly transition but as a source of information to determine risks. The FSB plans to set up a working group to understand the relevance of transition plans for financial stability.

The continued progress of the roadmap relies on non-financial institutions also making similar progress, especially with addressing disclosures, data gaps and transition plans, the FSB stated.

“Engagement with external stakeholders, including the private sector, is essential to understand evolving risk management practices, firms’ progress on their transition goals and how methodologies and analytical tools to measure and analyse climate-related risks can evolve over time,” the FSB report stated.

The roadmap, endorsed by the G20, was first published in 2021 and set out a comprehensive plan to access climate-related financial risks.

The FSB was established by the G20 following the 2008 financial crash to promote and develop coordinated global financial stability efforts among international regulators, supervisors and other financial sector bodies. It is currently chaired by Klass Knot, president of De Nederlandsche Bank.