Climate Change and New Risks

Financial regulators are tasked with ensuring the stability of the banking sector, traditionally focusing on capital reserves and liquidity. However, climate change introduces new risks beyond financial metrics, including physical and transition risks. The current regulatory approach may not adequately address these challenges, requiring a shift toward integrating climate risk management into supervisory frameworks. This involves proactive measures such as incorporating climate risks into banks’ risk management and decision-making processes. Collaboration among stakeholders is crucial for setting standards and driving innovation in climate risk management. Addressing climate change requires a global perspective, recognizing its interconnectedness and tailoring responses to national contexts. Institutions must analyze socio-economic, environmental, and political factors to effectively address climate vulnerabilities. Strategies for mitigating climate risks need urgent attention, with a focus on innovative methodologies and tailored action plans. Financial institutions, both public and private, have significant responsibilities in addressing climate change, including integrating climate risk into risk management frameworks and aligning business strategies with sustainability goals.