The Basel-based Financial Stability Board (FSB) has submitted a proposal to the G20 that calls for the creation of an industry-led disclosure task force on climate-related risks, the FSB announced on Monday.
Under the proposal, the FSB recommends that the financial industry should develop voluntary, consistent climate-related disclosure standards that would be useful to lenders, insurers, investors and others in understanding the material risks from climate change.
“Appropriate disclosure is a prerequisite for both the private sector and authorities to understand and measure the potential effects on the financial sector of climate change, as markets evolve and as the wider economy transitions towards a low-carbon economy,” it says in its proposal.
For example, the FSB suggests that companies could be pushed to disclose the size of their carbon footprint, and plans to manage the transition to a lower-carbon business model. “This may assist market participants in making investment, credit, or insurance underwriting decisions that take into account the physical, liability and transition risks associated with climate change, including how those risks may evolve in the future,” the FSB says in its proposal.
In addition, climate-related risk disclosures would also enable financial institutions and others to “assess the credibility of firms’ transition plans and their ability to execute them, and analyze the potential changes in value of their assets and liabilities that could result from a transition to a lower carbon economy or to other climate-related events,” the FSB says in its proposal.
The FSB also says that financial institutions could be similarly encouraged to disclose their exposures to climate risks and their efforts to manage those exposures. “Such disclosures by financial institutions would foster an early assessment of these risks, facilitate market discipline and encourage firms to manage what they are measuring. It would also provide a source of data that can be analyzed at a systemic level, to facilitate authorities’ assessments of the materiality of any risks posed by climate change to the financial sector, and the channels through which this is most likely to be transmitted.”
The proposal comes in response to a request by the G20 back in April to review how the financial sector can better account for climate-related issues.