Macrofinancial Relevance of Cascading Climate Risks: Insights for Investors and Financial Supervisors

Worsening climate change and a disorderly transition to a low-carbon economy introduce new sources of risk for countries’ sustainable development. In order to strengthen fiscal and financial risk management, it is crucial to understand through which channels climate risks can cascades onto agents and sectors of the economy and finance, and the drivers of potential shock amplification.

The direct, indirect, and cascading climate impacts that could unfold are influenced by country-specific exposures and structural characteristics, and can compound with other sources of stress. However, financial industry players and policy makers still lack a coherent framework and tools to assess the macro-financial criticality of cascading climate risks to their business, and to adapt risk management.

In this session, the experts panel will discuss the following:

• What are the drivers and potential implications of cascading climate risks for macroeconomic and financial stability?

• Through which channels can climate risks cascade on financial actors’ balance sheets and financial stability? Do we have the right tools to assess them?

• Could cascading risks be integrated into financial risk management of financial actors and supervisors, and what implications would this have on financial regulation?