Banks and insurance have key role to play in reducing climate-related financial stability risks, joint ECB/ESRB report finds

• Banks significantly exposed to high-emitting firms and households, with future climate risks underpriced and underinsured
• Macroprudential policy can keep systemic risk in check with existing instruments and complement microprudential efforts
• Strong economic dependence on natural ecosystems could exacerbate climate-related financial stability risks

The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) today published a joint report on the impact of climate change on the European Union (EU) financial system. The report sets out detailed frameworks for addressing risk to the financial system by (i) gathering evidence on the most important financial stability indicators via a surveillance framework and accompanying Chartbook, (ii) leveraging this evidence to develop a macroprudential strategy for addressing climate risk, and (iii) extending the scope from climate-related risks to broader nature-related risks.