Agenda: Addressing the Consequences of Climate Change on Financial Stability
1. Introduction
Overview of climate change as an emerging risk to financial systems globally.
Understanding the interconnectedness between climate-related events and financial
stability.
Objectives of the meeting: To explore strategies for mitigating the financial risks posed
by climate change.
2. The Financial Risks of Climate Change
Physical Risks: Impact of extreme weather events (floods, droughts, storms) on assets,
infrastructure, and insurance claims.
Transition Risks: Economic risks associated with the shift to a low-carbon economy,
including stranded assets in fossil fuel industries and the costs of regulatory compliance.
Liability Risks: Financial liabilities related to legal claims against companies for
contributing to or failing to adapt to climate change.
3. Assessing the Impact of Climate Change on Financial Institutions
Banking Sector: Risks to lending, increased credit defaults in affected industries or
regions, and capital adequacy challenges.
Insurance Sector: Rising costs and shrinking margins due to higher claims related to
climate-related disasters.
Investment Sector: Asset valuation shifts due to regulatory changes and evolving
investor preferences toward sustainable practices.
Real Estate: Decreasing property values in high-risk areas and the effect on mortgage-
backed securities.
4. Regulatory and Policy Responses
Climate Stress Testing: Introducing stress tests for banks and financial institutions to
assess their resilience to climate-related risks.
Disclosure Requirements: Mandating climate risk disclosure in financial reports
following frameworks like the Task Force on Climate-Related Financial Disclosures
(TCFD).
Green Finance Initiatives: Promoting green bonds and sustainable investments to
support the transition to a low-carbon economy.
Carbon Pricing and Emissions Trading Schemes: Integrating carbon costs into
financial planning and risk assessments.
5. Mitigating Financial Risks from Climate Change
Risk Management Practices: Adopting climate risk assessments within institutions'
overall risk management strategies.
Scenario Analysis: Preparing for various climate scenarios (optimistic, medium, worst-
case) to understand financial exposures under different conditions.
Diversification Strategies: Reducing concentration in climate-vulnerable sectors and
regions to minimize risk exposure.
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Insurance and Reinsurance Mechanisms: Strengthening insurance mechanisms to
cope with increasing claims from climate-related disasters.
6. Opportunities for Sustainable Finance
Financing the Green Transition: Supporting investments in renewable energy, energy
efficiency, and sustainable agriculture.
Developing Green Financial Products: Expanding green bonds, ESG (Environmental,
Social, Governance) funds, and sustainability-linked loans.
Public-Private Partnerships (PPPs): Collaborating between governments and financial
institutions to finance large-scale climate adaptation and mitigation projects.
7. International Collaboration and Standards
Global Standards and Frameworks: Aligning national regulations with international
guidelines like the Paris Agreement and SDGs (Sustainable Development Goals).
Role of Multilateral Financial Institutions: Encouraging the involvement of institutions
like the World Bank and IMF in providing funding and expertise to address climate risks
in developing countries.
Cross-Border Coordination: Enhancing cooperation between countries on climate-
related financial regulations, risk-sharing, and disaster recovery funding.
8. Conclusion and Action Steps
Summary of the key insights and proposed measures.
Developing an action plan for financial institutions, regulators, and governments to
enhance climate resilience in the financial system.
Setting up regular reviews and updates on the progress of addressing climate-related
financial risks.
9. Next Steps and Future Meetings
Scheduling follow-up meetings and forming working groups to implement the agreed
strategies.
Monitoring the implementation of disclosure regulations, green finance development,
and risk management enhancements.
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Created:23.01.25 Internal 2/2
