FSB publishes framework for assessing climate-related financial vulnerabilities
The Financial Stability Board (FSB) has released a new analytical framework and toolkit for assessing climate-related vulnerabilities in the financial system. As climate shocks become more frequent, concerns are growing over their potential to destabilise financial institutions and disrupt financial services.
The framework outlines how physical and transition climate risks can propagate through the global financial system via transmission channels such as credit risk, liquidity risk, market risk, and underwriting risk. It also highlights potential amplification mechanisms, including cross-sector contagion, fire sales, and interactions with pre-existing economic vulnerabilities. By mapping these dynamics, the FSB aims to provide a comprehensive cross-border and cross-sectoral approach to understanding financial system exposure to climate-related shocks.
The development of forward-looking metrics that FSB members could use to monitor climate-related financial risks in real time. The framework will remain a live document, evolving as methodologies, data availability, and risk assessment techniques improve.
Structured data will play a crucial role in monitoring, quantifying, and reporting climate-related financial risks. Digital reporting standards will be essential for ensuring transparency, comparability, and interoperability across jurisdictions, enabling regulators to track emerging vulnerabilities effectively.
The full FSB report is available here.
