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Principle 2: MANAGE climate risks

Be active in understanding and managing climate risk. Assess your portfolio, pipeline and new investments. Work with clients to determine appropriate measures for building resilience to climate impacts and improving the long-term sustainability of investments.

The growing threats from climate change make understanding, quantifying and actively managing business exposure to the physical impacts of climate change and sudden or dramatic decreases in the value of carbon assets an important part of modern-day risk management.

Principle 2 emphasizes the importance of understanding and addressing climate change risks to an institution’s existing portfolio and operations, as well as pipeline and future investments.

 

Implementing Principle 2 may include the following actions:

  • Assessing and managing exposure to climate-related financial risks
    • Assessing the climate-related transition risks of assets and transactions
    • Assessing the physical climate risks of assets and transactions
    • Assessing the climate-related liability risks of assets and transactions
    • Integrating results of risk analysis into risk management processes

Additional resources

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Climate tango: principles for integrating physical and transition climate risk assessment with sectoral examples

Training materials

Mini-MOOC “Financial Climate Risk”

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TCFD Knowledge Hub

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Liability risk and adaptation finance

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The Climate Risk Landscape

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Assessing Physical Risks from Climate Change: Do Companies and Financial Organizations Have Sufficient Guidance?

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A guide to building climate-financial scenarios

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Addressing challenges of physical climate risk analysis in financial institutions

Case study

IsDB: Climate Change Adaptation Sector Guidance Note

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From disclosure to action: applying TCFD principles throughout financial institutions

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Beyond the Horizon

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Overview of Environmental Risk Analysis by Financial Institutions

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Charting a New Climate

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Taming the Green Swan: How to improve climate-related financial risk assessments

Tools and guidance

NGFS Climate Scenarios for central banks and supervisors

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Understanding physical climate risks and opportunities

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NGFS Status Report on Financial Institutions’ Experiences

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Governance and Management of Climate Related Risks by French Banking Institutions: some good practices

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Integrating climate-related risks into banks’ capital requirements

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A sustainable and responsible investment guide for central banks’ portfolio management