FSB Consults on Supervisory and Regulatory Approaches to Climate Risk
The Financial Stability Board (FSB) is seeking comments, June 30, 2022, on a report with the aim to assist supervisory and regulatory authorities in developing their approaches to monitor, manage, and mitigate climate-related risks.
The report focuses 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. The report puts forward an early view on the need for tools and policies to sufficiently address systemic risks arising from climate change. The report examines the extent to which the existing policies and tools address all or parts of climate-related risks and contains an Annex that briefly explains approaches of selected authorities for gathering information from financial institutions on climate-related risks. FSB is inviting comments on the recommendations set out in the following three focus areas and includes a set of questions for this purpose:
- Reporting and data collection. Keeping in mind the challenges related to the lack of sufficiently consistent, comparable, granular, and reliable climate data reporting by financial institutions, the recommendations address identification of information needs of authorities, strengthening of the reliability of data by supervisory oversight on governance, processes, and controls of financial institutions, use of common definitions across jurisdictions and sectors, and global coordination toward common regulatory reporting frameworks.
- System-wide supervisory and regulatory approaches. Supervisory and regulatory risk assessments and policies need to better incorporate understanding of the channels for how climate risks to financial institutions may be transferred across sectors or borders. A system-wide approach would draw on the elements of existing prudential frameworks, including supervisory review and evaluation processes; use of risk analytical tools such as scenario analysis and stress testing exercises; supervisory actions to address deficiencies in management of climate risks; and macro-prudential tools and policies to address systemic risks. The report includes recommendations on the way the authorities should account for the potential widespread impact of climate risks across the financial system, including expanding the use of climate scenario analysis and stress testing exercises. One of the recommendations is that future exercises should consider the range of financial risks beyond credit and market risks, to the extent they pose material risks, such as liquidity and insurance (underwriting) risks, which could be important to assessing the resilience of sectors across the financial system and address their interconnectedness.
- Macro-prudential policies and tools. The report presents the early thinking from standard-setting bodies and authorities on macro-prudential policies and tools that could complement micro-prudential measures and trade-off considerations. The report recommends authorities and standard-setting bodies to undertake research and analysis in the near to medium term on appropriate enhancements to their regulatory and supervisory frameworks.
These three areas taken together inform how the use of climate scenario analysis and stress tests can be expanded to incorporate systemic risks that arise from climate change and to better inform a macroprudential perspective of risks across financial sectors and jurisdictions. The report has been developed as part of the FSB Roadmap for Addressing Climate-related Financial Risks (published in 2021). FSB plans to incorporate feedback from this consultation and then publish the final recommendations in the fourth quarter of 2022.
Related Links
Keywords: International, Banking, Insurance, Securities, Basel, ESG, Climate Change Risk, Disclosures, Reporting, Systemic Risk, Prudential Framework, Scenario Analysis, Stress Testing, Macro-Prudential Policy, FSB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
EBA Issues Advice on Review of Macro-Prudential FrameworkRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.