According to a new International Monetary Fund report, the effects of extreme weather conditions are harmful to the health of financial systems. It went on to say that the risks of transitioning to a low-carbon economy affect financial institutions as well, citing the costs of new carbon taxes or new laws requiring the phase-out of fossil fuels before greener replacements were available.
According to the IMF, with the right tools, financial sector authorities could begin to assess climate risks as a critical input to determining how to manage them through appropriate policies.
The Fund’s Financial Sector Assessment Programme already conducts regular assessments of banks’ and other institutions’ resilience, including stress tests to better gauge systemic risks.
These procedures are being redesigned to include climate risk analysis to better gauge financial stability risks from climate change.