This report explores how climate-related risk drivers, including physical risks and transition risks, can arise and affect both banks and the banking system via micro- and macroeconomic transmission channels. According to the report:
– The economic and financial market impacts of climate-related risks can vary according to geography, sector and economic and financial system development.
– Traditional risk categories used by financial institutions and reflected in the Basel Framework (eg credit risk, market risk, liquidity risk, operational risk) can be used to capture climate-related financial risks.
– There is limited research and accompanying data that explore how climate-related risks feed into the traditional risks faced by banks. A better understanding of climate risk drivers and their impact on banks’ exposures across all risk types would be gained from further research by a broader community.