Either because temperatures continue to rise as the transition is eluded; or because we face a disorderly transition - a so-called climate Minsky moment – as a significant number of otherwise productive assets have to be abandoned; or as asset prices adjust whilst risk and return are repriced. To avoid such outcomes, financial firms need to manage these risks not as they materialise but instead by looking ahead over much longer time horizons than they are used to. And, as our supervisory expectations of banks and insurers make clear, they need to act strategically and pre-emptively, taking different decisions today, well before the consequences of inaction become clear.3  Climate scenario analysis  Climate scenario analysis provides us with the toolkit for doing just that. To look forwards not backwards, with a horizon of decades not years. In recognition of the uncertainty we face about what might happen to our planet and our economy, some scenarios show the most efficient pathway to net zero, while others highlight the risks of fragmented policies or insufficient action. They can all help guide actions today. 3  See PRA supervisory expectations on the financial risks from climate change. Plotting the transmission channels of climate risks into economic and financial risks is a fiendishly complicated task [figure 2]. The channels from climate to financial risk are numerous, with significant interdependencies. The data and methodologies to translate climate outcomes into macroeconomic and financial risks are incomplete and inadequate.
Remedial actions need to be evaluated in terms of their short-term efficacy as well as their longer-term implications. •  Unbalanced financial systems create vulnerabilities. Financial systems that are unduly reliant on banks for financial intermediation are likely to be more vulnerable and slower to recover from the onset of weakness. Shallow capital markets limit lending alternatives and delay the recovery of financing to the real sector. The challenges can be daunting, but recent experience both within and beyond Asia confirms that a dedicated commitment to financial reform contributes to sustainable recoveries and greater crisisresilience. Just as strong financial systems act as stabilizers when a domestic economy is battered, weak financial systems amplify the scope and reach of the problems, making bad situations worse. Longer-term financial stability While financial sector rehabilitation will remain a key priority for authorities in Asia, longer-term measures need to be put in place to deal adequately with the increasingly complex and dynamic international financial marketplace of the twenty-first century. The threats to financial stability are many, and no one set of measures can be expected to ensure against the recurrence of future problems. Financial intermediation is a constantly evolving activity, involving new risks, instruments, and control challenges. Financial institutions and policymakers alike should continue to upgrade their processes to remain in command of these risks.