Building financial resilience: Integrating climate risk into the prudential risk framework

With climate-related events increasingly impacting financial stability, central banks and regulatory bodies are working hard to integrate climate risk considerations into risk management and regulatory reporting.

On the back of the Bloomberg’s recent Toronto Sustainable Finance Forum, Dharrini Bala Gadiyaram, Global Head of Enterprise Risk Product at Bloomberg, shares some best practices for integrating climate risk considerations in risk management and regulatory reporting and how financial leaders can best prepare for the challenges ahead.

What do you think is the biggest challenge companies are facing in effectively measuring, managing, and mitigating climate risks?

Regulations related to climate stress testing and risk management, especially in Canada, have been evolving over the last 5-7 years and have not been a surprise to market participants. However, the primary challenges that financial institutions face in climate risk management lie in the effective incorporation of these risks into the traditional risk management pillars of credit, market, liquidity, and operational risks rather than looking at them as a separate pillar.

[...]