Climate Risk Analysis by Financial Institutions – Sustainable Finance Briefing Paper Series

The paper explains how climate risks—both physical and transition—can destabilize the financial system by affecting asset values, credit risks, and operations. In response, the EU has introduced regulations requiring financial institutions to identify, manage, and disclose these risks. However, many institutions are still behind in meeting expectations. Tools like scenario analysis, stress testing, and better governance are key to closing the gap. The paper also emphasizes the sector’s crucial role in financing the green transition through sustainable finance tools such as green bonds and ESG-aligned investments.