Climate change as a source of financial risk
In the October 2018 progress report, NGFS members acknowledged that “climate-related risks are a source of financial risk. It is therefore within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.” The legal mandates of central banks and financial supervisors vary throughout the NGFS membership, but they typically include responsibility for price stability, financial stability and the safety and soundness of financial institutions. Even though the prime responsibility for ensuring the success of the Paris Agreement rests with governments, it is up to central banks and supervisors to shape and deliver on their substantial role in addressing climate-related risks within the remit of their mandates. Understanding how structural changes affect the financial system and the economy is core to fulfilling these responsibilities.
Climate change is one of many sources of structural change affecting the financial system.1 However, it has distinctive characteristics that mean it needs to be considered and managed differently.