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Climate-related Financial Risk Factors in Remuneration Frameworks

The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009.

Last April 20 the Compensation Monitoring Contact Group of FSB released a report reviewing compensation practices around climate-related objectives and how the stated goal of financial institutions is incorporated into their compensation frameworks.

The overall conclusion of the report is that the inclusion of climate-related metrics - part of the environmental, social and governance (ESG) factors - "is still at an early, evolutionary stage". And so far limited to the level executive and senior management.

Some challenges are listed:

  • gaps in data availability and reliability, hampering consistent metrics and monitoring

  • establishing a clear alignment between objectively measurable metrics and financial institutions’ strategies

  • time mismatch between compensation periods and assessment of climate-related results

  • "It is difficult to ascertain how climate-related KPIs are, or will be, integrated to the compensation framework for all staff."

Besides a short Executive Summary, here is the structure of the 17 pages report so that you go directly to the part that interests you:

  • Regulatory and supervisory developments. Examples include Brazil, Canada, Europena Union, Italy, Singapore and United Kingdom.

  • Strategy and external commitments. With several iniciatives listed.

  • Metrics. With examples of compensation frameworks, including for insurance companies.

  • Development of framework and actual application. With several specific examples accross the globe.

  • Performance evaluation and compensation outcomes. "Box 3: Examples of evolving practices" (page 14)

  • Impact on compensation by role. So far, as already indicated, limited to the "Top Level".

  • Challenges and future focus. The 4 already listed above.

The press release concludes: "Continuous revision and adaptation of metrics by financial institutions, in response to a fast-changing environment, is needed to ensure effective alignment of compensation with prudent risk taking. Financial regulators can facilitate this process by helping share regulatory and industry practices with each other and with industry."

Click at the image below to download the full report and here for FSB press release.


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“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

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