Financial markets and financial institutions are affected both by physical climate change and by the transition to a low emission society. High on the agenda is understanding how climate change may affect the financial system and the role of the supervisory authorities. Finanstilsynet's participation in this work involves developing methodology and supervisory tools.
Finanstilsynet's work on climate risk
Finanstilsynet’s main objective is to promote financial stability and well-functioning markets. As in the case of other risk factors, the financial industry’s handling of climate risk should be followed up primarily through supervision of entities’ risk assessments and financial position. Finanstilsynet expects entities’ risk management systems to cover all significant risks, including risks related to the impact of climate changes and the transition to a low emission society.
There is a need for better knowledge on how various industries and regions will be impacted by climate change and the transition to a low emission economy. Work on measuring and modelling economic consequences of climate change, and on measures for financial institutions and financial markets, is in progress internationally, albeit at an early stage. The same is true of the development of relevant scenarios for use in scenario analyses and stress tests for climate risk. Finanstilsynet participates for example in the European supervisory effort and in the Network for Greening the Financial System (NGFS) on developing such a methodology.
Network for Greening the Financial System (NGFS)
The NGFS is a network of central banks and financial supervisory authorities sharing experience and best practices, contributing to the management of environmental and climate risk in the financial sector, and mobilising the financial industry to work for a sustainable economy. The network’s objective is to define and promote best practices both within and outside the NGFS, as well as doing sustainable finance analyses. Finanstilsynet and Norges Bank are both members of the network.
The NGFS is organised in three groups/workstreams: supervision (WS1), macrofinancial supervision (WS2) and green finance (WS3). Finanstilsynet participates in groups 1 and 2.