When it comes to quantifying financial risk, rating agencies have traditionally played a crucial role – and it should be no different for climate-related financial risk. Sustainability ratings will help to reduce information asymmetries between issuers and potential investors. Since climate risk is financial risk, it has to be part of all credit ratings.
The major rating agencies have started to include sustainability aspects, including climate change risk into their credit assessments. Going forward, we rather need to develop commonly recognised methodologies to assess climate change risk. This includes standardised data, definitions, and weighting of risk factors. Central banks also need to tackle climate-related challenges in their own areas of responsibility.