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FSB Issues Guidance for Regulators on Climate-related Risks

Report offers recommendations for monitoring, managing and mitigating climate-related risks to promote consistent approaches.

The Financial Stability Board (FSB) has published a new report offering guidance to financial markets supervisors and regulators on their approaches to climate related-risks.

Specifically, the report offers recommendations for monitoring, managing and mitigating cross-sectoral and system-wide risks arising from climate change, to promote consistent approaches across sectors and jurisdictions. The recommendations centre around three areas:

1. Supervisory and regulatory reporting and collection of climate-related data from financial institutions. Consistent and comparable firm disclosures, based on a global baseline climate reporting standard, provide a good starting or reference point for the future development of regular standardised regulatory reporting requirements.

Authorities may also require more granular and specific information for supervisory or regulatory purposes. The report includes recommendations on the identification of authorities’ information needs, reliability of data, use of common definitions and coordination towards common regulatory reporting requirements.

2. System-wide supervisory and regulatory approaches to assessing climate-related risks. Supervisory and regulatory risk assessments and policies need to better incorporate understanding of the channels through which climate-related risks to financial institutions may be transferred across sectors or borders.

The report includes recommendations on how authorities’ approaches should account for the potential widespread impact of climate-related risks across the financial system, including with respect to use of scenario analysis and stress testing exercises.

3. 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 report presents some of the early thinking on macroprudential policies and tools that could complement microprudential measures, and trade-off considerations.

The report is open for comment until 30 June 2022. The final recommendations, incorporating feedback from the public consultation, will be published in Q4 2022.

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