How to strengthen climate risk management and supervision to protect financial stability
Climate change does not conform to business, political or supervisory regime cycles– its adverse long-term impacts lie beyond such horizons. Ten years ago, when Mark Carney highlighted this paradox in his landmark Tragedy of the Horizons speech, climate change was not considered a financial stability risk. Today, European supervisory stress tests estimate up to €638 billion in banking losses over 8 years, while the European Central Bank (ECB) reveals that over 90% of eurozone banks face climate and environmental risks. A key question arises: Is the supervisors’ primary focus on greening the financial system sufficient in the face of rising risks, especially stranded assets?
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