Report finds climate change presents physical, transition risks

(Nov. 25, 2020) Physical risks posed to financial stability by climate change – even in the short term — include a sharp fall in asset prices and an increase in uncertainty, according to a new report issued this week by an international group of financial regulators.

However, the group said, another key risk to financial stability could be a disorderly transition to a low-carbon economy, brought about by an “abrupt change in (actual or expected)” public policy not anticipated by market participants, including that due to the increased materialization of physical risks, as well as technological developments.” The report — The Implications of Climate Change for Financial Stability – was released by the Financial Stability Board (FSB), a Basel, Switzerland-based organization made up of national authorities responsible for financial stability in 24 countries and jurisdictions, and others. FSB is chaired by Federal Reserve Board Vice Chair for Supervision Randal Quarles.

The report comes after the credit unions and banks in New York in October were advised by their state regulator to integrate financial risks from climate change into their governance, risk-management and business strategy frameworks, reportedly the first time a state supervisory agency for financial institutions has taken that approach.

The New York State Department of Financial Services said the guidance followed similar direction given to state-regulated insurers. October’s action, the agency indicated, would ensure that all of its regulated entities are managing climate risks. The letter was advisory only; it outlined no supervisory actions to be taken by the agency.

LINKS:
The Implications of Climate Change for Financial Stability

Letter from NY DFS: climate change and financial risks