On 23 November the Financial Stability Board (“FSB”) published its report analysing the impact of climate change on financial stability, assessing the factors through which climate-related risks may impact the global financial system if they were to materialise.
The report stresses the importance of an orderly transition to a low carbon economy – the impact of a disorderly transition could have a “destabilising effect on the financial system” and “might be brought about by sudden changes in technology” (e.g. significant innovations in the energy sector) or unexpected changes in public policy.
One issue identified by the report and relevant to all UK firms is that the efficacy of actions taken by financial services firms to mitigate their exposure to climate-related risks may be lessened due to the lack of the necessary data to assess client exposure to the same; the report notes that “substantial progress” in respect of voluntary disclosure frameworks has been undertaken, but notes that the Taskforce on Climate-related Financial Disclosures (“TCFD”) “found that the proportion of companies disclosing climate related information has increased in recent years, [but] is still fairly low in absolute terms”.
The FSB is currently targeting October 2021 to publish its further work assessing “the availability of data through which climate-related risks to financial stability could be monitored, as well as any data gaps”.