Exclusive reporting by Mathew Carr
Sept. 13, 2023 — The Financial Stability Board appears to be preparing for more climate disasters that could badly hurt banks and insurers.
“Global exposure to climate risks is becoming more evident, and recent weather events have shown the potential for non-linear effects,” it told the G20 in a letter sent ahead of last weekend’s G20 meeting in India.
Wildfires in Portugal and Hawaii and shocking floods in Libya are among the mounting “non-linear” events that the world is witnessing (non-linear because global heating will mean surprising storms and weather that’s chaotic and more brutal than a person might ordinarily expect as greenhouse gas levels in the atmosphere gradually get more and more concentrated). Things won’t gradually get bad. They’re sometimes likely to get very bad very quickly in a particular location … and then hopefully revert to a mean.
A milestone in the FSB’s “Climate Roadmap” was the publication of the International Sustainability Standards Board (ISSB)’s disclosure standards, which were endorsed by the International Organization of Securities Commissions (IOSCO) in July.
Earlier this week I asked, rather hopefully, whether the IOSCO chairman Jean-Paul Servais reckoned the agreement of the climate-disclosure standards by the ISSB would mean the world will meet the UN target to cut global emissions by 43% by 2030 vs 2019 levels. (I expect emissions to be at or near record levels this year, so above 2019, but I hope I’m wrong.)
Servais wouldn’t be drawn on whether the limit will be met.
“I wouldn’t say that,” he told me on the sidelines of the Economist Impact event in London, at which he attended a live panel.
“We don’t expect from the financial sector that they provide for technical solutions,” Servais said. “That’s not their job. They are not scientists. They are bankers, they are investors… You expect that they are able to channel, I would say, the investment to the targets which are in line with ESG expectations. For this, first of all, we need to speak the same languages.”
Having a common language, which is what the world now has via ISSB, is like a “virtuous circle”, he said.
“Now, we have the capacity to implement,” which is up to the various jurisdictions.
“We know that the (various) trains won’t leave at the same speed. I think it’s important that we are able to comply with our own timings. The tool kit is there. It’s comprehensive.”
I asked him whether the US or other multilateral organisations were slowing progress and not matching Europe’s efforts.
“Each jurisdiction will decide what they do. Of course you have first movers and we will see what happens.” He didn’t really answer my question.
The ISSB standards serve as a global framework for sustainability disclosures and,
when implemented, will strengthen the comparability, consistency, and decision-usefulness of
climate-related financial disclosures around the world.
The world IS together (sorta)
These standards can be seen as a culmination of the work of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), which has made a substantial global contribution to climate action since its creation in 2015. “The FSB will work with the ISSB and other relevant bodies to promote their timely and wide use,” the former said.
“If we want to be together, we have to have a step-by-step approach to game changing. ”
Servais
Being together is “what happened recently with the endorsement in July by IOSCO of ISSB standards. Now we have the capacity to speak a common new language.”
World is actually together on sustainability
NOTES
Letter text:
Press release only below this headline:
FSB Chair writes to G20 Leaders ahead of the New Delhi Summit
5 September 2023
Press enquiries:
+41 61 280 8486
press@fsb.org
Ref: 24/2023
- FSB Chair warns that the higher interest rates that have been necessary to address inflation, alongside a slowing growth outlook, could impair the capacity of borrowers to service historically high levels of debt.
- Work to address financial stability risks associated with leverage in the non-bank financial intermediation (NBFI) sector will be a major focus of FSB policy work in 2024.
- A separate letter calls for continued support from Leaders as work to enhance cross-border payments shifts towards implementing practical projects in partnership with the private sector.
The Financial Stability Board (FSB) today published two letters from its Chair, Klaas Knot, to G20 Leaders ahead of their Summit in New Delhi on 9-10 September.
The first letter outlines the work the FSB has undertaken under the Leadership of India’s G20 Presidency to address existing vulnerabilities in the financial system and enhance the resilience of the financial system to structural change.
The letter notes the challenging backdrop of strong and persistent inflation and slowing growth, and warns that rising interest rates could impair the capacity of borrowers to service the historically high stock of global debt. He calls on authorities to closely monitor asset quality in those sectors most sensitive to higher interest rates, such as real estate. The letter highlights concerns over the build-up of leverage in the NBFI sector, described in a report being delivered to the Summit, and notes that addressing these risks will be a major focus of NBFI policy work next year.
The March banking-sector turmoil constituted a test of the financial reforms put in place following the 2008 crisis. It exposed vulnerabilities in individual institutions relating to poor liquidity and interest rate risk management and governance, and reinforced the need for strong and effective supervision and The FSB and the Basel Committee on Banking Supervision (BCBS) are examining the implications of these issues to identify lessons and adjust policy frameworks where needed. The FSB remains convinced that the international resolution framework developed by the FSB in the aftermath of the 2008 Global Financial Crisis is fit for purpose, but we have identified a number of implementation challenges that need to be addressed. To this end, the FSB will soon publish a report on preliminary lessons learned for resolution and policy priorities going forward.
The letter outlines the FSB’s work to address the financial stability implications of two secular trends – digitalisation and climate change. In response to the former, the FSB delivered to the G20 in July a set of recommendations for the regulation, supervision and oversight both of crypto-assets and markets and of global stablecoin arrangements. The FSB is now working with standard-setting bodies and international organisations to ensure that these recommendations are implemented globally. Recognising that crypto-assets raise both financial stability and macroeconomic risks, the FSB and IMF are delivering to the Summit a Synthesis Paper that brings together the risks identified by each institution and how they interact. The paper also includes a roadmap for future work.
Accelerating digitalisation across the financial system has improved efficiencies but also raised operational resilience challenges. For instance, the interconnectedness of the global financial system makes it possible that an incident at one financial institution, or at one of its third-party service providers, could have spill-over effects across borders and sectors. To address these risks the FSB issued in April recommendations to achieve greater convergence in cyber incident reporting frameworks. The FSB has also consulted on a policy toolkit that financial institutions and financial authorities can use to enhance their third-party risk management and oversight. The toolkit will be finalised in December.
In response to climate risks, the FSB is coordinating closely with standard-setting bodies and international organisations to implement the four building blocks of its Roadmap on Climate-related Financial Risks. An important milestone has been the publication of the International Sustainability Standards Board (ISSB)’s disclosure standards, which have been endorsed by the International Organization of Securities Commissions (IOSCO). The ISSB standards will strengthen the comparability, consistency and decision-usefulness of climate-related financial disclosures around the world. These standards can be seen as a culmination of the work of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), which has made a major global contribution since its creation in 2015.
A second letter provides to G20 Leaders an update on the G20 Cross-border Payments Roadmap. The first phase – the initial set of actions set out in the 2020 Roadmap – has now largely been completed. This year, in the second phase, the authorities and standard setters have focussed their efforts on concrete projects that will make a difference across various parts of the cross-border landscape and on developing further the partnership with the private sector to work to achieve the Roadmap goals. The letter underscores the need for continued further political support and sustained effort by the public and private sectors in order to meet the G20 targets by 2027 to make cross-border payments cheaper, faster, more inclusive and more transparent. Leadership from the G20 has energised the public and private sectors and provided the political impetus, without which change will not happen.
The FSB will submit to the G20 Finance Ministers and Central Bank Governors in October its first report with data on progress toward the quantitative targets and its latest annual report on progress in the individual Roadmap actions.
Notes to editors (part of press release)
The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.
The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.
Press release available as: PDF
Content Type(s): Press, Press Releases Source(s): FSB Policy Area(s): Climate-related Risks, Cross Border Payments, Crypto Assets, Cyber Resilience, Non-bank financial intermediation, Resolution and Crisis Management
(Adds iosco togetherness)