In 1Q 2023, the US and Canada implemented regulatory measures to accelerate the climate-change risk agenda at banks
Government action to mitigate climate-change risk has gained momentum globally. The transition to a low-carbon economy presents financial institutions with both risks and opportunities. Climate-change risk has a distinct financial impact on each financial institution and can vary across regions. For the financial services industry, the consensus of organizations and task forces such as the International Accounting Standards Board (IASB), Task Force on Climate related Financial Disclosures (TCFD), Partnership for Carbon Accounting Financials (PCAF) and United Nations (UN) on disclosing the financial impact of physical and transition risks is fast becoming an industry standard.
Physical risks can be categorized as either acute or chronic. Acute risks include heatwaves, flooding, wildfires, cold waves, and hurricanes. On the other hand, chronic risks manifest over longer periods of time in a gradual manner, and includes a rise in sea levels, changes in precipitation patterns, and higher global average temperatures
Transition risks stem from mitigation and adaptation efforts in response to climate change, driven by government regulations, technological changes, consumer activism and, hence, increased consumer demand for environment-friendly products and services
