As mentioned earlier, climate change issues can have a significant impact on the business conditions of financial institutions, and hence on the stability of the financial system, through physical risks and transition risks. Please see Slide 5 for more details on the transmission channels.
When physical risks and transition risks associated with climate change materialize, they can have a substantial impact on the real economy through the disruption of business, a decline in asset values, and a rise in energy prices. These adverse effects on the real economy will impact the financial system through a decline in the value of assets and an increase in credit costs.