Banks should manage climate-related financial risk in a manner that is proportionate to the nature, scale and complexity of their activities and the overall level of risk that each bank is willing to accept. Additionally, banks should consider the potential impacts of climate-related risk drivers on their individual business models and assess the financial materiality of these risks.

Things to Remember

• Climate-related financial risks can include physical risks (such as damage from extreme weather events) and transition risks (such as policy changes impacting asset values).
• Banks need to consider the long-term implications of climate change on their business operations, investments, and risk management strategies.
• Regulatory bodies and industry standards are increasingly emphasizing the importance of integrating climate-related risks into financial decision-making processes.
• Scenario analysis and stress testing are important tools for assessing the potential impact of different climate-related scenarios on a bank's financial stability.