BPI Comments on Financial Stability Board’s Report on Supervisory and Regulatory Approaches to Climate-related Risks

Ladies and Gentlemen:

The Bank Policy Institute[1] appreciates the opportunity to comment on the Financial Stability Board’s Interim Report on Supervisory and Regulatory Approaches to Climate-related Risks,[2] which seeks to assist supervisory and regulatory authorities in developing their approaches related to firms’ monitoring, managing, and mitigating risks arising from climate change, as well as promote consistent supervisory approaches across sectors and jurisdictions.

BPI supports the FSB’s efforts to develop a more consistent global approach to addressing
climate-related risks, avoiding regulatory fragmentation, and thereby being helpful to both financial institutions and supervisors as they work to ensure that financial institutions identify and manage the possible manifestations of physical- and transition-related risks of climate change on their businesses and operations.[3] Our members are actively evaluating climate-related financial risks and the potential impacts on their businesses, and are devoting substantial resources to developing risk management capabilities to identify, measure, and mitigate any such risks.

Our comments on the Interim Report focus on three key areas of concern. First, the final Report
should clarify that any supervisory approach to climate-related financial risk—and particularly regulatory reporting expectations or requirements—must appropriately recognize and consider the significant gaps and limitations related to data availability and quality and the nascent stage of modelling and methodologies. The further enhancement and development of which is crucial for the development of more refined risk management tools for climate-related financial risk. Second, the final Report should provide financial institutions with flexibility in designing and implementing their risk management approaches to climate-related financial risk, including with respect to defining “materiality” for risk management purposes, and in the use of any quantitative limits and thresholds. Third, the final Report should acknowledge the lack of supporting evidence and considerable costs associated with the imposition of certain macroprudential and microprudential tools for addressing climate-related financial risk, particularly with regard to capital requirements imposed either through the Pillar II capital framework or through any systemic climate-risk buffer. We elaborate on each of these concerns below.

To read the full comment letter, click here, or click on the download button below.

[1] The Bank Policy Institute is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

[2] Financial Stability Board, Supervisory and Regulatory Approaches to Climate-related Risks: Interim Report (April 29, 2022), available at https://www.fsb.org/wp-content/uploads/P290422.pdf.

[3] For purposes of our comments, the terms “climate-related financial risk,” “physical risk,” and “transition risk” have the meanings as outlined in the Financial Stability Oversight Council’s Report on Climate-Related Financial Risk (Oct. 21, 2021), available at https://home.treasury.gov/system/files/261/FSOCClimate-Report.pdf, and Basel Committee on Banking Supervision, Climate-related risk drivers and their transmission channels (April 2021), available at https://www.bis.org/bcbs/publ/d517.pdf.