July 22, 2020 / 1:09 PM / 24 days ago

Patchy data hinders climate risk assessment in finance - regulator

LONDON (Reuters) - Comparing how banks and insurers from different countries cope with climate change is being hampered by a lack of consistent data, the Financial Stability Board said on Wednesday.

Regulators are asking financial firms to gauge “physical” and “transition” risks from climate change to see if they pose any significant threat to the wider financial system.

This refers to how weather events like more frequent floods or policies that favour low carbon investments, affect their balance sheets.

Some regulators like the Bank of England are already planning for a climate-related stress test of financial firms.

But the Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 Economies (G20) and is chaired U.S. Federal Reserve Vice Chair Randal Quarles, said in a report that regulators and investors could find it difficult to compare banks or insurers from different countries.

“No approach to quantification provides a holistic assessment of climate-related risks to the global financial system,” the FSB said in its “stock take” of how regulators look at climate-related risks in assessing financial stability.

“Neither is there currently a consistent methodology for the assessment of climate risks that can assess cross-border spillovers,” it said.

These uncertainties give rise to a lack of consistent data and methodologies through which to translate potential outcomes for the climate into estimates of financial exposures, it said.

The FSB set out voluntary guidance in 2017 for disclosing the financial impact of climate change, but it is being applied differently across countries.

The FSB said it would conduct further work by October, looking in particular at the cross-border effects of climate change on the financial system.

“The FSB will also consider the scope for work to assess available data through which climate-related risks can be monitored, as well as any data gaps,” it said.

Graphic - FSB Climate Related Financial Disclosures: here

Reporting by Huw Jones; Editing by Susan Fenton

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