NGFS call on central banks to step up on climate litigation 

September 12th, 2023

The Network for Greening the Financial System (NGFS) has urged central banks and financial supervisers to build up their capabilities for assessing and managing risks posed to the financial sector by climate litigation.

The organisation – a network of central banks and financial supervisors – published two reports looking at the increasing frequency and complexity of climate-related litigation involving financial institutions.

The first report considered recent trends and developments in climate-related litigation and how they impact the financial sector and the work of central banks and supervisors.

It found that between 2021-2022, more than 70% of climate litigation cases were brought against governments and public actors, including central banks and supervisors. These actions were often brought about with the aim of increasing public access to information and access to justice in environmental matters.

As such, the NGFS said central banks and financial supervisers need to increase their monitoring and supervisory expectations.

Chiara Zilioli, chair of the experts’ network on legal issues and general counsel of the European Central Bank, said: “As climate and environment-related litigation continues to expand across jurisdictions and economic sectors, the impact on the financial sector is becoming ever more evident.

“It is crucial for central banks, supervisors and financial institutions to be aware of these trends, and to take action to address these risks.”

The second report from the NGFS focused on micro-prudential supervision of climate-related litigation risks and how supervisors and central banks need to identify risk drivers, transmission channels and exposures to properly assess ensuing financial risks to a financial institution.

The report set out potential options for the micro-prudential supervision of risks and suggested that supervisors adopt a risk-based approach to better prioritize their supervisory activity.

Tolga Yalkin, chair of the NGFS’ workstream supervision and assistant superintendent – policy, innovation and stakeholder affairs at the Canadian Office of the Superintendent of Financial Institutions, said: “Climate change is happening across the globe, faster and more profoundly than some expected. These significant and rapid changes will increase litigation.

“Prudential supervisors must make sure financial institutions are addressing this litigation risk.”