The “Physical Climate Risk Assessment for the Financial Sector” playbook, developed by CDRI and supported by The Rockefeller Foundation, guides financial institutions (FIs) in low- and middle-income countries (LMICs) to assess and manage physical climate risks.
It outlines a structured approach—awareness, assessment, and action—emphasizing the hazard-exposure-vulnerability (HEV) framework and climate value-at-risk (VaR) modelling. The playbook promotes integrating climate risk into governance, strategy, and credit processes, while highlighting opportunities in green finance. It addresses challenges like data gaps, lack of standardization, and limited macro-level guidance.
Tools like the Global Infrastructure Risk Model and Resilience Index (GIRI) support localized risk analysis. The document calls for collaboration among regulators, policymakers, and FIs to institutionalize climate risk assessments and unlock financing for climate-resilient infrastructure, ensuring long-term economic and environmental sustainability in LMICs.
Key points
- Model climate scenarios to estimate asset-level financial risk exposure.
- Embed climate risk into governance, strategy, and financial decision-making.
- Climate change enables green bonds, loans, and sustainable finance products.
- Inconsistent data and standards hinder climate risk financial assessments.
- Collaboration among stakeholders is essential for resilient financial ecosystems.
- Institutionalize climate risk practices to build long-term financial resilience.