The massive and abrupt materialisation of such losses might have implications for financial stability.7 The role of financial supervisors is to gauge the significance of climate-related risks for the financial system – and not just the risks caused by transitioning to a low-carbon economy, but also the ones triggered by climate change itself – such as the damage caused by an accumulation of extreme weather events.
That is why it is so important for climate risks to be disclosed and anchored in supervisory practice. Supervisors are hard at work at the methodically challenging task of carrying out any climate stress tests that may be required. Banks are required to also take climate risks into account.