Financial System Benchmark informs response to the US Fed climate-related risk draft principles

The World Benchmarking Alliance and our team of policy experts just submitted our comments to a consultation by the US Federal Reserve System on managing climate-related risk for Board-supervised financial institutions with over $100 billion in assets.

We welcome the principles put forward by the US Federal Reserve System and trust that the following feedback is informative in defining the final framework.

Our specific recommendations are:

  1. Recognition of the wider implications of climate risk beyond the physical and transition risks identified. Climate risk is inextricably intertwined with societal risk, which affects market sentiment and therefore influences financial stability. Risk management frameworks need to incorporate both quantitative and qualitative assessments. In particular, they need to evolve beyond the assets, operational and business risk of the banks. Systemic risk comes from system failure beyond financial assets.
  2. We agree that risk management of climate-related risk is a governance issue which needs to sit at the highest accountability structure within the bank. We recommend strengthening the wording of this principle so that the board has mandatory responsibility, not just oversight of climate-related risk.
  3. Ensure that the principles incorporate these banks’ influence and effect beyond your domestic border and the management of risk beyond your domestic financial markets. Contagion of climate-related risk across global markets is inevitable. The USA and its largest banks play a critical global role in managing global financial risk and ensuring global market stability.
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