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Why financial supervision requires a qualitative approach to climate risks and tackling #GreenSwans

Understanding Finance / Cartoons & Explainers

While it is now certain that climate change will destabilise the financial sector, measuring with any degree of precision its impact on financial institutions presents an impossible task for supervisors.

This is particularly true of physical risk, given the lack of data inherent to a forward-looking event, but even more so of the biggest risk of all, disruption risk – now made familiar due to Covid – where climate change will severely affect the economy as a whole, and subsequently the financial system.

Tackling the climate-finance doom loop does not require modelling but action. Finance Watch argues that regulators already grasp the economics of the situation, and have the legal basis and the regulatory tools needed to intervene without waiting.


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