Financial stability risks from climate change
In this speech, Elisabeth Stheeman, External Member of Bank of England´s Financial Policy Committee (FPC), explains how climate change and the transition to net zero have big consequences for the economy and the financial system and how Central Banks and Supervisors will contribute to progress towards assessing and mitigating the financial risks from climate change, an important role since a failure to price climate risks sufficiently could lead to significant financial losses and financial instability.
Key findings from the speech:
- A systemic risk to the financial system can be seen through two main channels:
- Physical risks can arise from damage to property, land and other infrastructure as well as disruption to business supply chains and food systems.
- Transition risks stem from the move towards a net zero economy, arising from changes in climate policy, technology and shifting consumer preferences. The implied change in energy costs has already been having a significant effect on many businesses.
- Climate-related risks could destabilize capital markets and have potential to cause disruption across the broader economy. Firms cannot diversify away from their exposure to the planet and in that sense, climate change could be described as the ultimate systemic risk.
- The financial system has an important role to play in supporting an orderly transition to net zero but a shared responsibility: Responsibility for achieving net zero lies with government through setting climate policy, with industry through innovation and climate action, with private finance through facilitating investment to support those changes, and with consumers through the spending and personal investment choices they make.
- The FPC´s role is to ensure that the financial system is resilient to climate-related financial risks, and thereby it can support the transition to net zero. In this regard, the Bank of England is now focusing on further exploring major UK banks and insurers´ prospective responses to the crystallization of climate risks and expects to publish results in May.
Filter results
According to IE University’s Center for the Governance of Change, deeper and more integrated financial markets would strengthen the euro’s global role. This requires, among other elements, resilient and interoperable payment systems and completing the banking union.
Partnerships between banks and private credit: The winners will be those that combine bank underwriting discipline, distribution, and customer access with private capital’s appetite for long-dated, illiquid risk, according to Oliver Wyman.
Lucrezia Reichlin (CEPR): A CBDC is not a prerequisite for monetary sovereignty. Confusing money with payments can risk misdiagnosing the problem and misaligning economic policy efforts.
According to the World Economic Forum´s Global Risk Report 2026, geoeconomic confrontation, mis- and disinformation and societal polarization make up the top three short-term risks, while environmental risks dominate in the long term.
According to the World Economic Forum, over the last few years AI has moved from experimentation to workflow integration, promising systemic gains in productivity while also raising critical questions around economic inclusion, values, trust and resilience.
According to AFME, a clearer, more coherent, and proportionate regulatory environment, without unnecessary layers and focuses on growth and competitiveness, is keyl to increase investor confidence, unlock private capital and deepen European capital markets
According to the Center for the Governance of Change at IE University, Europeans support technological progress if it reinforces security, inclusion, and social welfare; but resist it when change feels imposed, opaque, or misaligned with their values.
According to a recent report released by CEPS, European financial regulators should adopt competitiveness as a formal secondary objective, following the precedent established by the UK's Financial Services and Markets Act 2023.
According to the OECD. SMEs and start-ups that grow rapidly contribute significantly to job creation, economic growth and competitiveness. Indeed, SMEs that grow by one-third over a three-year period, contribute about as much to job creation as large firms.
According to @McKinsey, banks must prepare for a new growth curve. Strategic precision —the ability to combine technology, capital discipline, and deep customer insight— will distinguish the leaders from the laggards.
According to Kristalina Georgeva IMF Managing Director, lifting growth requires three things: one, regulatory housecleaning to unleash private enterprise; two, deeper regional integration; and three, preparedness to harness AI.
According to The European House – Ambrosetti, the European Union has an opportunity to boost competitiveness and growth by simplifying regulatory and supervisory frameworks, particularly in the areas of sustainability and the financial sector.