On October 13, 2022, the FSB released its final report Supervisory and Regulatory Approaches to Climate-related Risks (the Report).
The Report outlined the efforts taken to date by supervisory and regulatory authorities, including the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) to tackle climate-related financial risk.
The Report focuses on 3 areas :
1/ Supervisory and regulatory reporting and collection of climate-related data from financial institutions as foundational elements in the identification and monitoring of climate-related risks.
This section includes various analyses, including an analysis of the current regulatory and supervisory practices on the reporting and collection of climate-related data from financial institutions.
The regulatory and supervisory practices outlined in this report include:
Setting clear objectives on information needs (e.g., investor protection or market integrity purposes…)
Ad-hoc surveys, targeted information requests and stocktakes (e.g., focus of authorities on the understanding of financial institutions’ climate-related risk exposures and risk management practices…)
Climate scenario analysis (contributing to authorities’ understanding of the potential impacts of physical and transition risks from climate change).
Specific regulatory reporting requirements (e.g. publicly disclose information…)
Relevant data for supervision and regulation (e.g. identification, through granular data, of financial institutions’ exposures to sectors that are sensitive, vulnerable or exposed to physical, transition and liability risks arising from climate change…)
2/ System-wide supervisory and regulatory approaches to assessing climate-related risks (e.g.; climate scenario analysis and stress testing).
This section includes the elements of system-wide supervisory and regulatory tools and policies (e.g., supervisory review and evaluation processes, the use of risk analytical tools such as scenario analysis and stress testing exercises,...).
It also includes the steps taken on supervisory and regulatory tools and policies (e.g., supervisory risk management expectations of financial institutions and establishing climate-related disclosures requirements aligned with the TCFD recommendations…).
3/ The extent to which current policies and tools address climate-related risks.
As outlined in the Report, climate scenario analysis and stress tests have been the primary tool used to address the coverage of climate-related risks.
The Report includes FSB recommendations to support each area.