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FSB addresses climate-related financial risks

Federal Issues Financial Stability Board Climate-Related Financial Risks Disclosures Risk Management FSB

Federal Issues

On July 7, the Financial Stability Board (FSB) released several reports addressing climate-related financial risks. The FSB Roadmap for Addressing Climate-Related Financial Risks noted that a growing number of international initiatives are underway that address financial risks resulting from climate change. “Effective risk management at the level of individual companies and financial market participants is a precondition for a resilient financial system,” the report stated, adding that the “interconnections between climate-related financial risks faced by different participants in the financial system reinforce the case for coordinated action.” Among other things, the FSB set out a roadmap that focuses on four interrelated areas: (i) firm-level disclosures that should be used as the basis for pricing and managing climate-related financial risks at the level of individual entities and market participants; (ii) consistent metrics and disclosure data that can “provide the raw material for the diagnosis of climate-related vulnerabilities”; (iii) an analysis of vulnerabilities to provide the groundwork for designing and applying regulatory and supervisory framework and tools; and (iv) the establishment of regulatory and supervisory practices and tools to allow authorities to effectively identify climate-related risks to financial stability. FSB also released the Report on Promoting Climate-Related Disclosures, following a survey of members which explored national and regional current or planned climate-related disclosures. FSB presented several high-level recommendations, including, among other things, that financial authorities use a framework based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) across both non-financial corporates and financial institutions to propose a more consistent global approach. FSB issued another report entitled, The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, that suggested various priorities to address climate-related data gaps “to improve the monitoring and assessment of climate-related risks to financial stability.”

Additionally, Federal Reserve Board Vice Chair for Supervision, Randal K. Quarles, spoke before the Venice International Conference on Climate Change on July 11, in which he discussed the work of the TCFD and stressed the importance of improving data quality and addressing data gaps, as well as ultimately establishing "a basis of comprehensive, consistent, and comparable data for global monitoring and assessing climate-related financial risks."

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