Climate changes and financial stability

Sweden and Swedish financial institutions have small exposures to climate risks. This means that the current risk that climate changes will cause problems for financial stability is low. However, there is a need for more information as well as improved transparency surrounding climate-related risks within the sector. Financial institutions also need to develop stress tests and analyses in order to identify what kind of consequences could arise from these risks and how such consequences could be prevented.

Climate risks represent yet another reason why it is important to have good resilience in the financial system, for example through large capital buffers held by the banks. However, it is FI's opinion that these buffers do not need to be expanded to cover risks related to climate changes.

Within the financial sector, the availability of information and the level of transparency related to climate-related risks both need to be improved. For example, a report published by FI in the autumn of 2015 that investigated how banks take sustainability and the environment into account in their lending practices indicated that customers, the market and authorities would benefit from better insight into how the banks are handling sustainability-related topics. One way to improve such insight, for example, would be to develop uniform, accepted measurement tools and definitions of risks and exposures.

More knowledge is also needed about the manner in which climate risks can affect financial institutions and the financial system. Financial institutions need to develop stress tests and scenario analyses to gain more of an understanding about the specific vulnerabilities that climate changes could exploit and identify possible preventive measures. These types of measures have already been started in many areas for pure, business-related considerations. FI is prepared to assist these efforts, for example with different types of coordination initiatives.

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