On July 7, 2021, the Financial Stability Board (FSB) released:
(1) its Roadmap for Addressing Climate-Related Financial Risks (Roadmap);
(2) a related 46-page Report on Promoting Climate-Related Disclosures (Climate Disclosure Report); and
(3) a related 52-page Report on the Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability (Climate Data Availability Report).
The current FSB chair, Randal Quarles, also issued a related letter to the G20 Finance Ministers and Central Bank Governors that stresses the need for coordinated action to address financial risks posed by climate change, noting the large, and growing, number of international initiatives underway.
The Roadmap, which has been submitted to the G20 for endorsement, sets out a comprehensive and coordinated plan for addressing climate-related financial risks, including specifying regulatory actions and implementation timeframes. If endorsed by the G20, the Roadmap will facilitate adoption of the FSB regulatory proposal by member countries. The Roadmap also outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.
The Roadmap notes the ongoing work on climate issues by official sector bodies (including the FSB, NGFS, BCBS, CPMI, IAIS, IOSCO, OECD, IMF and World Bank) and a variety of private sector bodies. The issues have been added to recently by the IFRS Foundation proposal to establish an International Sustainability Standards Board (ISSB), which initially would focus on climate-related reporting. More generally, climate topics are being given an important place in both the G20 and G7 agendas for 2021, and preparations are underway for COP26.
Climate Disclosure Report
The Climate Disclosure Report sets high-level guidance, in the form of recommendations, to support financial authorities in their development of climate-related disclosure frameworks, appropriate to their wider public policy objectives and regulatory and legal frameworks. The report recommends that financial authorities:
- [U]se a framework based on the TCFD Recommendations across all sectors for climate-related financial disclosures, in line with jurisdictions’ regulatory and legal requirements.
- [P]romote sharing of experiences, provide mutual support across jurisdictions on implementation of climate-related disclosure frameworks and accelerate international efforts to help build industry-wide awareness, technical knowledge and capabilities.
- [S]trongly coordinate in order to provide clear and consistent expectations, guidance or requirements to firms across all sectors on climate-related disclosures.
- [H]elp to improve the reliability of climate-related disclosures [in the longer term] if they were to require, as appropriate, some form of third-party verification or assurance on such disclosures made by firms.
Climate Data Availability Report
The Climate Data Availability Report notes that “the specific nature of climate-related risks has a bearing on the data needed to monitor and assess their implications for financial stability.” This report states that the data should:
- Capture exposures of financial firms to climate-related risks, particularly those of a scale or concentration that might threaten financial stability.
- Support a global comparison and aggregation of financial firms’ exposures to climate-related risks.
- Support forward-looking assessments of climate-related risks to financial stability.
- Capture climate-related risk transfer and mitigation.
The report outlines “priority areas of work”—“some of which are already in progress”—that should address “important data gaps to improve the monitoring and assessment of climate-related risks to financial stability”:
- Improving “the availability and consistency of data on the underlying drivers of climate-related risks.”
- Developing “a baseline global sustainability reporting standard under robust governance and public oversight … [and] the FSB welcomes the IFRS’s program of work [in this regard].”
- Improving “the quality and consistency of data on financial institutions’ exposures to climate-related risks arising from their exposures to non-financial counterparties.”
- Developing “– including via engagement with private-sector providers of data – forward-looking metrics on climate-related risks, both at the level of individual firms and the financial system as a whole.”
- “[W]iden[ing] and harmonis[ing] data on the degree to which individual financial institutions’ exposures to climate-related risks are mitigated by insurance provision.”
- Comparing “authorities[’] … experiences of implementing scenario analysis as a means of assessing the resilience of the financial system to climate-related risks, and to identify relevant data gaps.”
- [The NGFS] continuing “to refine and develop scenarios, which financial authorities should make use of in their scenario analysis, as appropriate in order to align the data and methodologies used in such analysis.”