Summary of document history

Summary of document history

A more consistent global approach to addressing climate-related risks will help to better assess and mitigate financial vulnerabilities and to reduce the risk of harmful market fragmentation.

This report aims to assist supervisory and regulatory authorities in developing their approaches to monitor, manage and mitigate risks arising from climate change and to promote consistent approaches across sectors and jurisdictions.

Climate-related risks, including physical, transition and liability risks, may be transmitted across the financial system and may be amplified by the financial system, including across borders and across sectors. A more consistent global approach to addressing climate-related risks will help both to better assess and mitigate financial vulnerabilities and to reduce the risk of harmful market fragmentation. By focusing on cross-sectoral and system-wide aspects of climate-related financial risks, this report complements the standard-setting bodies’ ongoing work on approaches to addressing climate-related financial risks for their respective sectors in the development of supervisory and regulatory approaches to climate-related risks. In addition, as climate change is likely to represent a systemic risk for the financial sector, potential macroprudential tools or approaches would complement microprudential instruments.

The report

  • Examines supervisory and regulatory reporting and collection of climate-related data from financial institutions. (The lack of sufficiently consistent, comparable, granular and reliable climate data reported by financial institutions is a main challenge for authorities.)

  • Explores system-wide supervisory and regulatory approaches to assessing climate-related risks, including the use of analytical tools such as climate scenario analysis and stress testing

  • Assesses the extent to which current policies and tools address climate-related risks and gives early consideration to other potential macroprudential policies and tools

These three areas taken together inform how the use of climate scenario analysis and stress tests can be expanded to incorporate systemic risks that arise from climate change and to better inform a macroprudential perspective of risks across financial sectors and jurisdictions.

The FSB invites stakeholder views on the recommendations it has made in this report. Responses should be sent to [email protected] by 30 June 2022 with the title “Supervisory and Regulatory Approaches to Climate-related Risks”. Responses will be published on the FSB’s website unless respondents expressly request otherwise.

We welcome comments on our report, in particular on the below questions:

Supervisory and regulatory reporting and collection of climate-related data from financial institutions

  1. Does the report highlight the most important climate-related data (qualitative and quantitative) for supervisors’ and regulators’ identification of exposures and understanding of the impacts of climate-related risks of financial institutions and across financial sectors? Please provide examples of climate-related data deemed most relevant and that should be prioritised.

  2. Does the report draw attention to the appropriate areas to increase the reliability of climate-related data reported by financial institutions?

  3. Does the report appropriately identify the elements of a common high-level definition of climate-related risks (physical, transition and liability risks)?

  4. Do the proposed recommendations help accelerate the identification of authorities’ climate-related information needs from financial institutions and work towards common regulatory reporting frameworks? Please elaborate on areas where the recommendations could be enhanced, if any.

Incorporating systemic risks into supervisory and regulatory approaches

  1. Does the report identify relevant system-wide aspects that should be considered as part of supervisory and regulatory approaches to incorporate systemic risks arising from climate change? Please elaborate on other aspects that should be considered, if any.

  2. Does the report accurately reflect the extent to which current supervisory and regulatory tools and policies address climate-related risks?

  3. Do the proposed recommendations on incorporating systemic risks into supervisory and regulatory approaches, including the expanded use of climate scenario analysis and stress testing for macroprudential purposes, address the appropriate areas? Please elaborate if there are any other features or tools that should be considered.

Early considerations on other macroprudential tools and policies
  1. Are there other areas of work, literature or research being conducted on macroprudential tools and policies on climate-related risks that should be considered in the report?
Additional considerations
  1. Are there any other issues that should be considered in future work of the FSB on supervisory and regulatory approaches to climate-related risks?