The following recommendations are taken from the Financial Stability Board´s Final Report on Supervisory and Regulatory Approaches to Climate-related Risks, from 13 October 2022.,,
Supervisory and regulatory reporting and collection of climate-related data from financial institutions
Supervisory and regulatory authorities should accelerate the identification of their information needs for supervisory and regulatory objectives to address climate-related risks and work towards identifying, defining, and collecting climate-related data and key metrics that can inform climate risk assessment and monitoring.
Supervisory oversight on financial institutions’ governance, processes and controls on climate-related data reported, along with reviews by financial institutions’ internal audit function, could strengthen the reliability of data. Establishing supervisory expectations addressing these areas would serve as an effective mechanism.
Where appropriate within jurisdictions´ legal and regulatory frameworks, supervisory and regulatory authorities should consider the need for third-party verification to strengthen the reliability of climate-related data, such as on emerging key metrics, that will be relied on by authorities and financial market participants more broadly. Third-party verifications could play an important role also in avoiding greenwashing risks.
To promote further consistency across jurisdictions and sectors in the definition of climate-related risks, authorities should consider using common definitions (such as those proposed by standard-setting bodies and international bodies) for: (i) physical risk definition including both acute and chronic risks; (ii) transition risk definition including technological developments, behaviour or social change, and policy changes; and (iii) liability risk definition, whether separate from or as a subset of physical and transition risk.
To the extent that more granular and specific climate-related information is required for supervisory and regulatory objectives, above and beyond public disclosures:
■ authorities should begin with asking financial institutions to report to supervisors qualitative information supplemented with increasingly available quantitative information (including, where full information is not available, use of proxies or estimates); and
■ as the availability and quality of data and measurement methodologies improve, authorities should move towards regular standardised regulatory reporting requirements, in a manner proportionate to the nature, size, and risk profile of a financial institution’s activities and that takes into account the balance of benefits and costs.
In this way, strengthening the quality of data and improving its availability can possibly move forward together.
Global coordination and cooperation towards common regulatory reporting frameworks could be a catalyst in the identification of exposures and understanding of impacts of climate-related risks on financial institutions, financial sectors and to the broader financial system. Where authorities and standard-setting bodies have needs for similar types of data, they are encouraged to work towards common regulatory reporting requirements and common data sets as part of future work.
Recommendations for incorporating systemic risks into supervisory and regulatory approaches
In addition to microprudential measures at the firm level, authorities’ approaches should account for the potential widespread impact of climate-related risks across the financial system.
Jurisdictions are encouraged to expand the use of climate scenario analysis and stress testing as a tool for macroprudential purposes. The design and scope of the analysis should ideally include the following features to inform a system-wide view:
(i) Both physical and transition risks
(ii) Key financial sectors (e.g. banks, insurers, asset managers & pension funds)
(iii) Interdependencies between physical and transition risks, geographical and sectoral risks, as well as improved understanding of impacts on financial risks
(iv) System-wide aspects of climate-related risks such as indirect exposures, risk transfers, spillovers and feedback loops.
When designing their climate scenario analysis and stress tests, authorities should adopt features that can best inform a system-wide view. A top-down approach, or a combination of top-down and bottom-up approach (hybrid approach) could be used to capture cross-sectoral, system-wide aspects of climate-related risks. In addition, a dynamic balance sheet assumption could help capture second-round effects and potential feedback loops, while recognizing the inherent challenges on assumptions for financial institutions’ future actions over a longer time horizon.
Future exercises should consider the range of financial risks beyond credit and market risk, to the extent they pose material risks, such as liquidity and insurance (underwriting) risk, which could be important to assessing the resilience of sectors across the financial system and address their interconnectedness.
Cooperation and coordination between authorities within a jurisdiction is encouraged. Authorities within each jurisdiction, aligned with their mandates, should cooperate and coordinate to better inform a systemwide view of climate-related risks. Such cooperation could, for example, include joint system-wide scenario analysis or stress test exercises on climate-related risks.
With respect to cross-border coordination and cooperation, as authorities develop their approaches, authorities should engage in active dialogue on home-host coordination through means such as institution-specific supervisory colleges, given the global nature of climate-related risks. In addition, standard-setting and international bodies provide an important platform for cooperation and coordination on cross jurisdictional risks stemming from climate-related risks.
As the FSB noted in its 2021 Report, the NGFS will continue its work to refine and develop climate scenarios, which authorities should make use of in their climate scenario analysis, as appropriate, in order to align the data and methodologies used in such analysis.
 Financial Stability Board (FSB 2022), Supervisory and Regulatory Approaches to Climate-related Risks, Final report, 13 October 2022.
 “The Financial Stability Board (FSB) coordinates at the international level the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. …. These activities, including any decisions reached in their context, shall not be binding or give rise to any legal rights or obligations.” (see FSB 2022, p. ii).
 Verbatim rendering of the FSB recommendations on the following two pages (see FSB 2022, pp.1-5 plus chapter 2 and chapter 5).
 Financial Stability Board (FSB 2021), The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, July 2021.
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