Stockholm (NordSIP) – At the end of April, the Financial Stability Board (FSB) – an international body that monitors and makes recommendations about the global financial system – published a draft report with recommendations on financial risks connected to the environment. The report aims to guide supervisory and regulatory authorities on how to monitor, manage and mitigate cross-sectoral and system-wide risks arising from climate change. The FSB has opened a consultation inviting comments on its recommendations until Thursday, June 30th, 2022.
The report is divided into four main sections. The first section discusses the practices, data, risks and requirement associated with supervisory and regulatory reporting from financial institutions. The second section, reviews aspects of system-wide regulatory and supervisory approaches to climate-related risks. The draft report also considers the use of analytical tools for a system-wide perspective, including case studies from. Last but not least, the FSB discusses the extend to which regulatory and supervisory tools and policies address climate-related risks.
The draft report’s recommendations fall into three main headings. First, the FSB recommends that supervisory and regulatory authorities collect and report climate-related consistent and comparable data from financial institutions to provide a good starting or reference point for the future development of regular standardised regulatory reporting requirements.
The draft report also includes recommendations on how authorities’ approaches should account for the potential widespread impact of climate-related risks across the financial system. The FSB recommends authorities use scenario analysis and stress testing to understand the channels through which climate-related risks to financial institutions may be transferred across sectors or borders..
Lastly, the draft report endorses the early consideration of other potential macroprudential policies and tools to address systemic risks. “Microprudential tools alone may not sufficiently address the cross-sectoral, global and systemic dimensions of climate-related risks,” the FSB warns. The report presents some of the early thinking on macroprudential policies and tools that could complement microprudential measures, and trade-off considerations.
Following the consultation, the FSB will publish the final report during the last quarter of 2022.