How will an increased focus on climate risks impact your business?

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Numerous businesses have made sustainability and climate change a top priority in the last few years. This trend has been driven by a will to contribute to the fight against climate change and by the realization that climate change is a risk that businesses will need to manage and that will guide how the business community acts going forward.

An increased focus on the financial risks associated with climate change is to be expected after the Network for Greening the Financial System (NGFS) – of which Finansinspektion is a co-founder – recently released their first progress report about the risks climate change poses to the financial system. NGFS is a network comprising 23 central banks and supervisory authorities who aim to contribute to greater climate risk management within the financial sector.

In their first report, NGFS determine that climate change is a source of financial risk and therefore it falls within the mandates of central banks and supervisory authorities to mitigate and manage these risks. Several central banks and supervisory authorities have already set about encouraging the transition to a low-carbon economy. NGFS states that central banks and supervisory authorities will accelerate this work in the coming years.

The report also highlights that supervisory authorities have started actively assessing the risks climate change poses to financial institutions. These assessments include both the risks associated with a warmer climate with more extreme weather and the impact a transition to a low-carbon economy would have on certain assets. Many supervisory authorities are now gearing up to start communicating their expectations and requirements regarding financial institutions climate risk management.

NGFS also mentions the increasing relevance and importance of sustainability reporting. In a world where climate risks are increasingly pertinent it is important that businesses communicate what climate risks they are exposed to and how they are managed.

Related to this, the European Securities and Markets Authority (ESMA) recently announced the areas that European supervisory authorities will pay extra attention to when examining financial statements of listed companies. In their statement, ESMA highlights that issuers of securities should pay attention to reporting of non-financial information – especially information related to climate change and other environmental matters. In a comment to the statement, ESMA Chair Steven Maijoor says “Non-financial reporting, most notably on environmental matters, is gaining momentum in Europe, as part of a broader EU initiative to achieve a more sustainable financial system. To serve this purpose investors and the public need high-quality disclosures.”

Further to the findings presented by NGFS and the statement by ESMA, it was recently announced that the International Organization of Securities Commission has launched an international sustainability network on the initiative of Finansinspektionen. Erik Thedéen, Director General of Finansinspektionen, will be Chair of the network.

Based on the NGFS report and the attention supervisory authorities are giving to climate related risks, FCG believes that climate risk management will become ever more important in the years to come as the risks become more salient to investors, regulators and the public.

At FCG, we are convinced that working efficiently and ambitiously with sustainability will be critical to businesses as stakeholders raise their expectations. If you want to know more about how we can help you succeed making your business more sustainable, please do not hesitate to get in touch.