NGFS Publishes its Progress Report on the Implementation of the Recommendations of its Guide for Supervisors

The Network for Greening the Financial System (‘NGFS’) indicates conventional mortgage climate risk exposure is a high magnitude and low probability risk (outlined in green). The NGFS leveraged sector-level heat maps developed by the Swiss Financial Market Authority (‘FINMA’) which covers physical and transition risks to provide an overview of climate-related risk in relation to the probability of occurrence and financial impacts they would have in the event of occurrence.

The NGFS assesses the progress made by financial sector supervisors in integrating climate‑related and environmental risks into their supervisory frameworks. 12 Focus Areas are identified to better assist supervisors based on the initial 5 recommendations outlined in the NGFS Guide for Supervisors from May 2020, including:

• Use of Adequate Definitions of Climate-Related and Environmental Risk
• Incorporate Climate-Related and Environmental Risks in Supervisory Strategies
• Incorporate Climate-Related and Environmental Risks in Organizational Structure
• Build Capacity Through Awareness Raising and Expertise Development
• Develop Clear Understanding of Sources of Climate-Related and Environmental Risks
• Understand the Transmission Channels from Climate-Related and Environmental Risks to the Economy and Financial System
• Assess Financial Exposure Arising from Climate-Related and Environmental Risks through Qualitative and Quantitative Approaches
• Assess Potential Loss and Impacts Using Forward Looking Methodologies
• Develop Supervisory Expectations, Factoring Key Aspects including Governance, Business Strategy, Risk Management, Scenario Analysis and Disclosure
• Engage Supervised Entities on the Implementation of Supervisory Expectations
• Integrate Climate-Related and Environmental Risks in the Supervisory Frameworks and Processes
• Promote Comparable, Consistent and Reliable Climate-Related and Environmental Disclosures by Considering Aligning with Commonly Accepted Baseline Framework or Standards and Future International Reporting Standards