Financial climate risk: a review of recent advances and key challenges

Abstract: The document provides an overview of financial climate risks. It delves into how climate change impacts the global financial system, distinguishing between physical risks (such as extreme weather events) and transition risks (stemming from policy changes and economic transitions towards low carbon technologies). The paper underlines the complexity of accurately defining financial climate risk, citing the integration of climate science with financial risk analysis as a significant challenge. The paper highlights the pivotal role of microfinance institutions (MFIs) in addressing financial climate risk, especially for populations vulnerable to climate change. The document emphasizes the importance of updating risk management practices within MFIs to explicitly include climate risk assessments and suggests leveraging technology to improve these practices.