Global Trustee and Fiduciary Services Bite-Sized Issue 2 2025

9 QUICK LINKS BENCHMARKS REGULATION CRYPTOASSETS DORA EMIR FSB MIFID II/MIFIR MMF SUSTAINABLE FINANCE/ESG T+1 ASIA EUROPE INTERNATIONAL LUXEMBOURG NETHERLANDS NORTH AMERICA UNITED KINGDOM Global Trustee and Fiduciary Services Bite-Sized | Issue 2 | 2025 FSB Develops Analytical Framework and Toolkit to Assess Climate-related Vulnerabilities On 16 January 2025, the Financial Stability Board (FSB) published a report on the ‘assessment of climate-related vulnerabilities’. Building on the FSB Financial Stability Surveillance Framework and work carried out by its members, the FSB says that the report provides an analytical framework and toolkit to assess climate-related vulnerabilities, particularly from a cross-border and cross- sectoral perspective. The report notes that climate shocks trigger the typical vulnerabilities in financial stability assessments – such as credit, market and liquidity risks – but they are more complicated to analyse given their nature and uncertainties around timing and magnitude. The FSB explains that the analytical framework traces how physical and transition climate risks can be transmitted and amplified within the global financial system. Further, the FSB says that a toolkit accompanying the framework comprises three categories of metrics to monitor climate-related vulnerabilities from a forward-looking perspective. These are: i. Proxies to provide early signals on potential drivers of transition and physical risks; ii. Exposure metrics to gauge the extent of direct and indirect exposures in the real economy and the financial system; and iii. Risk metrics to quantify the impacts for financial institutions and the system as a whole. While these metrics are already used by some FSB members domestically, the FSB says that various methodological and data challenges need to be overcome for the metrics to be used for global monitoring. Finally, the FSB notes that the framework and toolkit are live documents, subject to refinement as understanding evolves on how climate-related vulnerabilities could affect financial stability. The FSB will continue to develop the framework by operationalising the toolkit and conducting in-depth analyses of specific climate vulnerabilities that may have global financial stability implications. Link to Report here FSB Examines the Relevance of Climate Transition Plans for Financial Stability On 14 January 2025, the FSB published a report on ‘The Relevance of Transition Plans for Financial Stability’, which the FSB says looks at the role that firms’ climate transition planning and the resulting outputs can play for financial stability. The FSB states that transition planning can help address climate-related risks to financial stability through three channels. Firstly, the FSB suggests that transition planning can facilitate firms’ strategy setting, which informs better climate-related risk management. Secondly, the FSB notes that it can also help inform investment decisions by addressing information gaps and reducing market failures. Finally, the FSB suggests that transition planning can support authorities’ macro- monitoring of transition and physical risks both in the financial system and the real economy. The FSB says that the use of transition plans for financial stability and macroprudential purposes remains in the early stages. Transition plans are not inherently designed for the purpose of financial stability assessments; their primary purpose is business strategy and target setting. Moreover, the FSB suggests that they are only available for a restricted number of firms and differ widely in terms of scope, coverage, methodologies and quality of key metrics. The FSB says that broader adoption of transition plans and continued efforts towards standardisation, including by international organisations and standard-setters, are key to making transition plans usable by financial authorities. Link to Report here