Regulators Should Require FIs to Consider Climate Risk: NGFS

Climate risks may be underestimated due to a lack of internal scenario analysis by financial institutions, the NGFS warns in a new report.

Regulators must act to ensure financial institutions are taking full account of financially-material climate and sustainability risks, according to a new report on sustainable finance market dynamics from the NGFS (Network for Greening the Financial System).

Asset managers should view management of such risks as integral to the execution of their fiduciary duties, said the report, which provides central bank members of the NGFS with recommendations to support the mobilisation of sustainable finance.

“There is a need for regulators to require financial institutions to consider material climate and sustainability factors as financial factors,” said the report, published yesterday by the NGFS, a group of 89 central banks and financial supervisors formed to support the Paris climate goals.

Although some financial institutions are already applying forward-looking scenario analysis to better understand the impact of climate-related risks on cash flows and financial results, it is not yet common practice, the NGFS report noted, adding that a lack of internal capacity is leading many to rely on third-party advisory services.

“Until such capacities have been developed and become mainstream at financial institutions … [continues]

Read the full article on Regulation Asia’s sister publication, ESG Investor.

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