Climate change as a source of risk in the financial sector

The article addresses new risks in the financial sector connected with climate change. With greenhouse gas emissions, temperatures will continue to rise and thus increase the financial risk arising from the physical consequences of climate change. The prevention of such consequences will increase the financial risk of the transition to a low-carbon economy, and will lead to changes in business models, to the phenomenon of stranded assets, etc. At the same time, the growing awareness of the need to prevent further climate change and to adapt to the changes already happening intensifies the pressure of various entities and environments on the financial sector to become involved in such activities, and to run its business responsibly and in accordance with the sustainable development concept. All this opens the financial sector to new risks (in addition to the physical risk and the transition risk), in the management of which it has no experience. Both the hedging and especially the materialisation of such risks will affect the stability of the financial sector. Moreover, such new conditions in the functioning of the financial sector, caused by climate change, generate new obligations and challenges for regulators and financial supervisors.