The Financial Stability Board (FSB), has issued its latest report on the ongoing work to address the financial risks posed by climate change — prompting concern that it is backing off from decisive action in the face of opposition from the new U.S. administration.
In a report published Monday, the global policy group provided an update to the G20 finance ministers and central bank governors on the work of standards setters and global policymakers to enhance disclosure of climate-related risks. The report summarized progress that’s been made in four areas: disclosure standards for firms, data and analysis, vulnerabilities analysis and development of regulatory tools.
It also sets out the FSB’s medium-term plans for tackling these risks, including coordination of international efforts.
That plan drew sharp criticism from advocacy group, Finance Watch, a non-profit based in Brussels, which said that the report “falls dramatically short of the G20’s original ambition on regulatory action.”
Among other things, it said that the group is relying on voluntary cooperation, rather than formal mandates for action by regulators and standards setters.
“The FSB’s latest roadmap has veered off course. The report contains no reference to macroprudential tools, nor future regulatory or supervisory measures, despite prior commitments to assess and address gaps in the global prudential framework,” said Julia Symon, head of research and advocacy at the group, in a statement.
“It fails to reaffirm the goal of regulatory convergence and a timely response to the systemic risk of climate change, retreating instead to a narrow focus on physical risks and insurance coverage,” she added.
The group also stressed the need for action, as the negative consequences of climate change are already materializing.
“Insurance markets are buckling, mortgages are turning to stranded assets, banks are retreating from high-risk areas, and asset prices are shifting beneath our feet,” it said. However, “under pressure from powerful jurisdictions, the FSB has reduced its focus to soft measures like voluntary coordination, information sharing and capacity building.”
In particular, it said that U.S. officials are demanding “proof of imminent financial instability,” before policy action can be taken — which is undermining the prospect of global action.
Indeed, the FSB’s report acknowledged that “Some jurisdictions, for example the United States, no longer support pursuing mandatory climate-related disclosures …”
“Against a background of geopolitical tensions and short-term political considerations driving national agendas, the resulting regulatory race to the bottom jeopardizes our ability to prevent global crises. Yet, with climate change, this time will truly be different,” Symon said.
“Unlike other financial risks, climate risk is not cyclical; it is cumulative and irreversible. But the FSB is closing the door on a timely and coherent global regulatory response,” Symon said. “If the G20 endorses this shift, we risk locking in a fragmented response. That weakens incentives for lagging jurisdictions, reduces multilateral pressure to act, and sidelines the possibility of preventing the next financial crisis.”