Financial Stability Board publishes climate risk roadmap

The Financial Stability Board (FSB) has published a roadmap to ensure greater global regulatory consistency over climate-related financial risks.

The FSB, which coordinates financial rules for the G20 group of nations, said the roadmap seeks to coordinate approaches to disclosures by companies.

It also seeks to fill gaps in the data needed to spot financial stability “vulnerabilities” and to develop tools to address them.

The roadmap attempts to align rules still in the planning stage between now and 2023 to avoid further divergences between various measures for the same activity.

“The time has come to take this to the next level and ensure that we avoid harmful market fragmentation,” said Randal Quarles, the US Federal Reserve Vice Chair who also chairs the FSB.

In its report to finance ministers and central banks belonging to the G20, the FSB highlighted four policy areas for attention:

  • Comparable climate-related disclosures by companies to help the firms and their stakeholders assess and manage risk
  • Granular data on how physical and transition risks translate into financial risks
  • Regular vulnerability analyses to deal with the “highly uncertain” nature of climate risks
  • Consistent tools and practices for regulators to oversee individual sectors as well as the wider system

The FSB is asking G20 finance ministers and central bankers meeting in Italy this week to back the roadmap so that all financial risk decisions appropriately take account of climate change.

It will report to the G20 each year on progress in coordinating climate-related risks.

Ahead of the Venice meeting, the FSB also called for the G20 to accelerate efforts to transition away from the scandal-hit Libor interbank rate, as well as urging them to examine vulnerabilities laid bare by the COVID-19 crisis, including in money market funds.

“The global financial system has weathered the COVID event thus far, thanks to greater resilience brought about by the G20 financial regulatory reforms, and the swift, bold and determined international policy response,” Quarles said.

However, he warned there were areas where the coronavirus pandemic had exposed vulnerabilities that need to be urgently addressed.

The FSB is to publish later this month an interim report on the lessons learnt from the crisis and how it has impacted global financial stability.

The FSB is asking G20 finance ministers and central bankers meeting in Italy this week to back the roadmap so that all financial risk decisions appropriately take account of climate change.

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