Climate risk-weighting: the devil and the deep blue sea
Should capital charges be calibrated to climate risk? European banks test the waters
Climate change is real. So is climate-related financial risk. Yet prevailing prudential standards fail to capture this, meaning lenders needn’t capitalise against potential losses either from physical risks – such as extreme weather events – or transition risks, which erode the value of carbon-hungry assets as green technologies supplant them.
“We know there are risks linked to climate change. We
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