FSB publishes recommendations to help regulators mitigate climate relate risks

The Financial Stability Board (FSB) has published recommendations to help regulators better mitigate climate-related risks and create more consistent approaches.

This covers areas including data and external assurance of disclosures and governance.

The FSB, established in the wake of the 2008 financial crisis,  published a final report on supervisory approaches to climate-related risks and a progress report on climate-related disclosures, which breaks down trends and improvements in reporting across national and regional authorities.

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The group encourages authorities to accelerate the identification of their data needs for supervisory and regulatory objectives as well as identify relevant types of data and metrics that they may require from financial institutions.

It also recommends providing key policy considerations to assist authorities in their future work towards expanding regular standardised regulatory reporting requirements.

Authorities are also advised to expand the use of climate scenario analysis and stress tests for macroprudential purposes.

In addition, they, along with standard-setting bodies, should undertake research and analysis in the near to medium term on the appropriate enhancements to their regulatory and supervisory frameworks.

The reports coincide with the annual update of the Task Force on Climate-related Financial Disclosures (TCFD), which was set up by the FSB in 2015 to develop guidelines for companies to voluntarily disclose the risks and opportunities from climate change.

According to the update, reports from 1,400 companies showed they were applying an average of 4.2 of the task force’s 11 recommended disclosures, with only 43% of firms applying at least five of them.

Only 4% of firms made disclosures with all 11 TCFD recommendations.

“The percent of companies disclosing TCFD-aligned information continues to grow, but more urgent progress is needed,”  the TCFD stated.

Broken down geographically, the report noted  “Europe remains the leading region for disclosure”  with an average score of 60% of the 11 recommendation disclosures.

It added, “Europe’s leadership is likely driven by increasing public sector attention to climate-related issues and requirements for climate-related reporting.”

The disclosures include whether or not the board has oversight of the company’s plan to lower its planet-harming carbon emissions, whether firm targets have been set, and the plan’s integration into the company’s risk management process.

International Sustainability Standards Board (ISSB) disclosures will replace TCFD in countries such as Britain, but the European Union and the US are working on their own mandatory climate disclosures for companies.

©Markets Media Europe 2022

 

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