The Financial Stability Board (FSB) has published a framework to help financial institutions assess climate risk using forward-looking metrics and proxies.

The analysis looks at how physical and transition risks can be transmitted and exacerbated, and offers tools to help monitor vulnerabilities.

It recommends the use of proxies to provide early signals on potential drivers of climate risk, metrics that allow institutions to gauge the extent of their exposure, and risk metrics to quantify entity-level and system-level impacts.

“While these metrics are already used by some FSB members domestically, various methodological and data challenges need to be overcome for them to be used for global monitoring,” noted the report, which was produced by FSB members including central banks and finance ministries.

It offers a case study of the real estate sector, based on “a severe yet plausible conceptual scenario of how a climate physical shock to the real estate sector may affect financial stability if insurance becomes less available, which causes risks to shift to households and businesses or to governments”.

Sarah Breeden, the deputy governor for financial stability at the Bank of England, and chair of the FSB group that prepared the report, said: “The framework provides a forward-looking approach to be able to capture the unique aspects of climate risks while staying rooted in traditional financial stability analysis”.

It came alongside another report from the Institute & Faculty of Actuaries on managing the risks of “planetary insolvency”.

“Actuaries deal with risk and uncertainty. The techniques they have developed underpin the functioning of the global pension market with $55trn of assets, and the global insurance market, collecting $8trn of premiums annually, to help us manage risk,” said the report, which was produced in partnership with the University of Exeter.

“Society trusts actuaries and other risk management professionals to minimise the risk of failure in these markets by managing the complex risks these industries face. This report shows how policymakers can adapt these risk management techniques and apply them to the global risks we currently face.”

Among the recommendations, IFoA said policymakers should “establish independent annual risk assessments to provide clear global systemic risk information to national and supra-national governance institutions”.

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