Emma Bickerstaffe Climate change is a major challenge for the financial services sector , as it poses both physical and transitional risks to the stability and performance of the industry . Physical risks are the direct impacts of climate change on the environment , such as extreme weather events , sea level rise and biodiversity loss . These can affect the value and viability of assets , loans and insurance products , as well as the operational resilience of financial institutions .

Transitional risks are the indirect impacts of climate change on the economy , such as policy changes , technological innovations and shifts in consumer preferences and behaviour .

These can affect the profitability and competitiveness of financial firms , as well as the demand and supply of financial services . We would recommend financial services firms take a comprehensive and holistic approach to climate risk management .

Anurag Bhatia This is likely to be the elephant in the room . While the vast majority of the ‘ sell ’ side still views the market in terms of opportunities and profits to be made , the ‘ buy ’ side is increasingly tilting towards greener options . Younger fund managers are keener on investing in projects that secure their environment along with their financial well-being .

As global awareness and regulatory frameworks around environmental sustainability continue to strengthen , financial institutions are compelled to reassess their practices and investments .

Climate-related risks , such as physical impacts and transition risks associated with shifts to a low-carbon economy ,

118 February 2024