Climate risk information for financial sector decision-makers in Africa: gaps and opportunities

Climate risk information for financial sector decision-makers in Africa: gaps and opportunities

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Financial sector decision-makers are increasingly concerned with the impact of climate change on financial sector stability and individual financial institutions. At the same time, they are aware of the important role that the sector can play in achieving positive climate outcomes, particularly in Africa, where climate impacts are likely to be more significant than in other parts of the world. Given that there is only a nascent understanding of how climate risk is transferred to the financial sector, ensuring that climate risk information is available, and fully and effectively incorporated into financial sector decisions, should be an important policy objective.

This working paper discusses the role of financial sector policy in relation to addressing gaps in climate risk information in the private finance sector, with a specific focus on Africa. 

The paper finds that the financial sector experiences several challenges related to generating, analysing and applying climate risk information in the context of financial sector decision-making in Africa. There are gaps in the availability of climate risk information that the financial sector requires for effective and efficient decision-making. This leads to the possibility that climate-related financial risks are not fully reflected in decisions related to asset valuations, capital allocations and financial product design, among other areas. Financial stability risk may result as well as increased sovereign risk (i.e., the risk of a country defaulting on its debt by not paying back interest or principal payments).

Specific recommendations for financial sector decision-makers include:

  • Financial sector decision-makers need to think beyond their traditional sphere of influence to ensure that the financial sector has the necessary climate-related information to manage climate risks and take advantage of the opportunities that addressing climate change brings.
  • Countries should consider including the need to adapt and transform their financial sectors in their updated United Nations (UN) Nationally Determined Contributions (NDCs).
  • Further analysis is required to identify and categorise the type of climate risk information needed by financial sector decision-makers.
  • Detailed analysis is needed on the ‘gaps’ in climate risk information.
  • A mapping of climate risk information for public companies and public financial institutions, such as sovereign wealth funds, and public insurance and savings schemes, would extend the information provided by budget-related initiatives such as Climate Public Expenditure and Institutional Reviews (CPEIRs).

Download the working paper here.

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