Huw Jones

LONDON (Reuters – Banks and financial companies could be forced to use external auditors to ensure that their climate data is accurate, according to the Financial Stability Board in a Friday report.

Government efforts to reach net-zero economies over the next decade are requiring financial institutions to disclose how climate change has impacted their business.

The data are subject to voluntary, patchy checks, which increases the chance of fraud or exaggerated climate-friendly claims in order to draw investors.

“Where appropriate within jurisdictions’ legal and regulatory frameworks, supervisory and regulatory authorities should consider the need for third-party verification to strengthen the reliability of climate-related data,” the FSB said in a report.

It stated that third-party verifications “could play an important part also in avoiding Greenwashing Risks.”

After trillions have been invested in ESG-related investments, based on an assortment of disclosures and checks around the world, regulators have grown increasingly concerned about greenwashing.

The FSB is made up of central bankers, financial regulators and treasury officers from the Group of 20 countries. It outlines regulatory principles that they agree to apply.

The report stated that financial institutions lack sufficient consistency, comparability, granular, reliable and consistent climate data to regulate climate-related reporting.

According to the FSB, banks must also consider whether a “macroprudential capital buffer” system-wide is necessary to protect against climate risks.

The FSB stated that climate change could pose a risk to the financial system and suggested potential tools or methods for macroprudential support.

G20 members should encourage expansion of the use of climate scenario analysis to stress test financial firms in order to determine the degree of systemic risk.