Cool heads must guide financial regulation of climate risk

Supervisors can’t simply rely on ‘magical thinking’ of market discipline, says Sergio Scandizzo

As cities burn and island chains submerge, the subject of climate risk is exponentially more than a hot topic. It’s life and death.

In the realm of global markets, it’s set to become a systematic feature of financial risk assessment. Bank supervisors will expect to see such assessment having material consequences for the composition of their constituents’ portfolios.

Yet there’s a paradox here.

Usually, when there is consensus on a desirable objective, we expect decision-makers to focus on how to