Climate change risks pose a systemic threat to the financial services industry and could impact the stability of the financial system. Two types of climate risk – physical risks from extreme weather incidents, and transition risks arising from the pace of movement to a greener economy – directly impact credit, market, and liquidity risks. They also impact operational, conduct, legal, and reputational risks that banks are typically exposed to. To further compound the situation, climate risks will exacerbate the vulnerabilities triggered by the pandemic.
The need for action is immediate: collaborative, swift, and decisive action is the key to efficiently managing climate risks and capitalizing on new opportunities. But translating conviction into action is not easy – it needs answers to a crucial question: what must the action focus on?
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