Climate Change Risk in the Financial System

Both climate change and the transition to a net-zero resilient economy pose risks to financial assets and the broader financial system—but these same risks can create opportunities for firms and investors. Moving forward, Resources for the Future will identify and improve the measurement of these risks to support financial stability, a thriving economy, and a healthy environment.

How do we make climate modeling and uncertainty analysis most relevant for companies and stakeholders in the financial sector?

Climate modeling on both the mitigation and impacts of climate change has not been designed to support risk analysis by firms and the financial sector. We will explore how to connect these modeling results to outcomes that firms, financial-sector regulators, and even citizens care about.

What’s the role of financial-sector regulators in addressing the financial risks associated with climate change?

Beyond thinking about the disclosure of information, we will examine how the Federal Reserve Board and other agencies can address the energy transition and risks of climate impacts while remaining consistent with the agency’s legislated mandate. We will assess whether and how jurisdictions at the national and international scales should consider harmonizing their approaches.

How can voluntary carbon offset markets contribute to mitigating both climate change and financial risks?

Looking at things from a corporate perspective: We will explore what can be done to support well-intentioned corporations in making the best decisions about carbon offsets. Looking at things from a societal perspective: We will explore how to leverage the existing interest and momentum among companies, in the form of voluntary pledges to maximize societal benefits. These voluntary pledges largely may take the form of emissions mitigation, but we also can explore other co-benefits such as improved human and ecosystem health, or the potential for technology investment and reduced mitigation costs in the future, such as investment in direct air capture.

How can investors keep up with the landscape of climate finance and financial risk, and what type of information should be disclosed by firms?

We will determine how to make it easier for investors to understand the energy transition and its implications for companies in terms of climate risks. We’ll also explore how investors might better recognize the companies that are significantly supporting (or hindering) a transition to a net-zero resilient economy.