Adverse
effects of climate change on banks’ and insurers’ assets and liabilities call for appropriate regulation and supervision to ensure that financial institutions are
adequately measuring, mitigating, and are buffered against climate risks.
Economic impact of climate-related events on highly leveraged (i.e. has more debt than equity) businesses and households can increase financial stability risks. Weakened private sector financials can also exert pressures on the government’s financials.