FRM Glossary · Part II · Current Issues

Climate Risk

Financial risk arising from climate change — physical (acute and chronic) and transition (policy, technology, sentiment) drivers.

In more detail

Physical risk: damage from extreme weather and chronic shifts. Transition risk: stranded assets, policy costs, and market repricing as the economy decarbonises. Banks integrate climate risk via stress scenarios (NGFS pathways), sector exposure mapping, and Pillar 3 disclosures.