What is climate risk?
Until very recently climate change was seen as a “future problem”. This has changed. The world is experiencing the physical impacts on climate change already today: more extreme downpours, droughts, record heat, it is all part of the same phenomenon. The policy response to climate change has been felt already for many years, and is accelerating with regulatory shifts such as the ECB Guide on Climate-Related and Environmental Risks, and the EU Taxonomy. Climate change is the main driver behind this megatrend. Yet, companies struggle to respond, due to lack of understanding of how climate presents as a material risk to financial stability and financial performance.
Climate risk can be categorized into Physical or Transition Risks.