Washington, D.C. – BPI welcomes the report issued today by the Financial Stability Oversight Council (FSOC), which touches on several important developments for managing climate-related financial risk, including consistent disclosure standards, development of risk management tools and eliminating data gaps. BPI SVP and Associate General Counsel Lauren Anderson today issued the following statement on the report:
“Climate-related financial risk is a priority issue for the financial sector, and banks are working diligently to better understand, manage and integrate climate-related risk indicators into their overall risk management frameworks.
“A disclosure standard will help to ensure that financial institutions are working with decision-useful, consistent and comparable data when evaluating companies and their own emissions profiles. This is especially true for banks who are inherently reliant on client disclosures to evaluate their own carbon footprint. A disclosure framework that is interoperable with other jurisdictions’ regimes will serve to fill data gaps and ensure a level playing field across countries.
“The report notes important work that is ongoing at the banking agencies to assess climate-related financial risks. The development of risk management tools, such as scenario analysis, that integrate traditional financial variables with plausible climate scenarios and emission reduction pathways will be crucial to ensuring risks are measured and managed appropriately. Given the unique nature of climate scenario analysis, these tools serve the purpose of risk identification and strategic decision making as opposed to assessing capital adequacy.
“Banks are already devoting significant resources to building out their internal scenario analysis capabilities along with portfolio alignment methodologies. Importantly, these tools will help banks identify financing opportunities and assist clients as economies make the long-term energy transition.”
For more of BPI’s work on climate, see the links below:
- Credit Losses from Declining Industries: Lessons for Climate-risk Modeling
- The FSB’s Climate Roadmap—Are We on the Road to a New International Standard?
- BPI Statement on HFSC Consumer Protection and Financial Institutions Subcommittee Hearing on Climate Risk
- Green Lending: Is Regulatory Exuberance Irrational (and a Little Dangerous)?
- SEC Should Build off its Traditional Disclosure Principles When It Comes to Climate
- Climate Risk and Bank Capital Requirements
- Regulators Ask Banks To Assess Climate-Related Risks From Largest Counterparties, but Data Gaps Persist
- BPI Welcomes Dialogue on Climate-Related Risks as Senate Banking Committee Holds Hearing
- Get the Transition to Green Financing Right
- Climate Risk Test Asks Banks to Look Too Far Down the Road
- Challenges in Stress Testing and Climate Change