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Ref: 2/2025

The Financial Stability Board (FSB) today published a report on the assessment of climate-related vulnerabilities. Building on the FSB Financial Stability Surveillance Framework and work carried out by members, the report provides an analytical framework and toolkit to assess climate-related vulnerabilities, particularly from a cross-border and cross-sectoral perspective.

Climate shocks trigger the typical vulnerabilities in financial stability assessments – such as credit, market and liquidity risks – but they are more complicated to analyse given their nature and uncertainties around timing and magnitude. The analytical framework traces how physical and transition climate risks can be transmitted and amplified within the global financial system.

A toolkit accompanying the framework comprises three categories of metrics to monitor climate-related vulnerabilities from a forward-looking perspective. These are: (i) proxies to provide early signals on potential drivers of transition and physical risks; (ii) exposure metrics to gauge the extent of direct and indirect exposures in the real economy and the financial system; and (iii) risk metrics to quantify the impacts for financial institutions and the system as a whole. While these metrics are already used by some FSB members domestically, various methodological and data challenges need to be overcome for them to be used for global monitoring.

“The framework provides a forward-looking approach to be able to capture the unique aspects of climate risks while staying rooted in traditional financial stability analysis”, said Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England and Chair of the FSB group that prepared the report. Nellie Liang, Under Secretary for Domestic Finance at the US Treasury Department and Chair of the Standing Committee on Assessment of Vulnerabilities (SCAV) that oversaw the preparation of the report added: “The framework is a welcome addition to the FSB’s financial stability surveillance. The case study in the report examining the potential consequences of the crystallisation of climate physical risks via real estate markets and changes in insurance coverage illustrates how the framework can be applied in practice.”

The framework and toolkit are live documents, subject to refinement as understanding evolves on how climate-related vulnerabilities could affect financial stability. The FSB will continue to develop the framework by operationalising the toolkit and conducting in-depth analyses of specific climate vulnerabilities that may have global financial stability implications.

Notes to editors

The FSB’s work to assess climate-related vulnerabilities forms part of the FSB Roadmap to Address Climate-related Financial Risks. The Roadmap, which was endorsed by G20 Leaders in July 2021, outlines key actions to be taken by standard-setting bodies and international organisations over a multi-year period in four policy areas: firm-level disclosures, data, vulnerabilities analysis, and regulatory and supervisory practices and tools.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.