Disentangling  1/2  BIS - Central bankers' speeches  these channels is important in assessing how climate shocks shape the allocation of production factors and are mapped onto aggregate outcomes. Climate change has a profound impact on banks' balance sheets and lending practices.
Localised climate shocks directly affect the value of assets used as collateral for loans, leading to a decrease in credit supply. The potential concentration of these risks among few entities and the possibility of these effects spreading to unaffected areas highlight the importance of prudent risk management practices within the banking industry. Financial markets can indeed accelerate the transition to a greener economy.