The Financial Stability Board (FSB) published responses to the consultation on a report on supervisory and regulatory approaches to climate-related risks. FSB expects to publish the final report in October 2022.
FSB requested comments, until June 30, 2022, on the report with the aim to assist supervisory and regulatory authorities in developing their approaches to monitor, manage, and mitigate climate-related risks. The report focused on cross-sectoral and system-wide aspects of climate-related financial risks and complements the standard-setting bodies’ ongoing work on approaches to address these risks. FSB invited comments on the recommendations set out in three focus areas related to reporting and data collection, system-wide supervisory and regulatory approaches, and macro-prudential policies and tools. FSB published comments received from numerous respondents, including the following:
- Bank Policy Institute (BPI)
- Canadian Bankers Association (CBA)
- European Banking Federation (EBF)
- Geneva Association
- German Banking Industry Committee
- Glasgow Financial Alliance for Net Zero (GFANZ)
- Global Legal Entity Identifier Foundation (GLEIF)
- Institute of International Finance (IIF), International Swaps and Derivatives Association (ISDA), Global Financial Markets Association (GFMA)
- International Banking Federation (IBFed)
- Japanese Bankers Association (JBA)
- Polish Bank Association
- Risk Management Association’s Climate Risk Consortia
- US Chamber of Commerce
- World Council of Credit Unions
Finance Watch mentioned that the recommendations do not take into account the time dimension of the climate risk problem; it also noted that impactful actions and coordinated approach between international bodies, national regulators and supervisors are necessary to address the systemic dimension of climate-related risks, since systemic risk can be only reduced by simultaneous combined action of all actors. The European Banking Federation notes that the most relevant issue regarding climate-related supervisory reporting is data reliability and the lack of maturity of the data needed. The German Banking Industry Committee supported calls by FSB to create international convergence on definitions as well as in sustainability reporting. Global banks and businesses need international standards, not a patchwork of regulation. In this regard, the greatest possible alignment of approaches and definitions is a goal worth supporting. The German Banking Industry Committee therefore welcomed the establishment of the International Sustainability Standards Board (ISS), whose standards will create a baseline for internationally active businesses. The German Committee opines that the effects of climate-related risks vary more at micro level than at macro level. There is, therefore, no need for industry-wide measures, but rather a bank-individual analysis, for example, through stress tests and scenario analyses, which examine exposures, portfolios, risk management practices, business models and risk mitigation strategies. Thus, , a blanket approach through Pillar I would not be effective. The Global Legal Entity Identifier Foundation (GLEIF), however, suggests that the Legal Entity Identifier (LEI) could be added to the mandatory reporting templates that supervisory authorities ask financial institutions to report.
Related Link: Responses to Consultation
Keywords: International, Banking, Insurance, Securities, Climate Change Risk, ESG, Reporting, Responses to Consultation, Recommendations, Regulation and Supervision, FSB
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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