State Street: climate risks fall under prudential regulation

New research by asset manager State Street Global Advisors has examined the macroeconomic implications of climate change. The research was aimed at identifying and estimating macroeconomic risks associated with climate change. The report considers the macroeconomic footprint of physical risks of climate change such as extreme weather as well as transition factors such as energy market shifts. In addition, the research analyses the possible range of policy tools that central banks can deploy in response to climate risks. The report concludes that responding to climate risks should be seen as prudential regulation: “given that climate risks may pose threats to financial stability, altering existing micro and macroprudential rules to fully address such risks, where material, falls under the scope of prudential regulation”.