Climate change is a source of financial risk
Glenn D Rudebusch
Foreword
Introduction
Sustainability for critical ecosystems: The future of risk management – more of the same or a new paradigm?
Climate change is a source of financial risk
The climate disclosure landscape in the finance sector
Green boxes? An overview of climate risk tools and analytics
Embedding climate change in financial metrics
Modelling climate physical risks
Climate-related stress-testing: Transition risks
Catastrophe risk modelling and climate change
Evidence-based climate stress testing
Climate risk drives a new paradigm in risk management
Incorporating climate change in asset allocation and portfolio construction
(Car)bon voyage: The road to low-carbon investment portfolios
Climate risk primer for community banks: Concepts and policies during a period of significant change
Next-generation analytics for climate finance
Climate finance post-COP26
Mobilising private funding
Climate change describes the trend toward higher average global surface temperatures and the accompanying environmental shifts, such as rising sea levels and more severe storms, floods, droughts and heatwaves. Climate change will have sweeping effects on all aspects of human society, including the economy and the financial sector. The ongoing trend of climate change – including higher temperatures and more extreme weather – will result in economic and financial losses for many businesses, households, and governments. Moreover, the uncertainty about the severity and timing of these losses is a source of financial risk. Climate-related shifts in the physical environment can slow economic growth and increase the likelihood of disruptions and reductions in output, employment and business profitability. Furthermore, the substantial economic transformation required to mitigate and adapt to climate change may lower the value of certain business and household assets in the not-too-distant future.
This chapter will describe how uncertainty about the magnitude, scope and timing of the economic damages from climate change translates into financial risk, which can adversely affect
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