What Role for Financial Supervisors in Addressing Environmental Risks?

A literature is rapidly developing on financial shocks originating from ecological imbalances. These shocks can be triggered by either intensified environmental policies, clean tech breakthroughs or due to the economic costs of crossing ecological boundaries. However, financial supervisors have so far given little attention to this ecological dimension. This allows systemic financial imbalances resulting from ecological pressures to build up and concentrate in financial institutions and markets. This paper sketches the ecological dimension of the prudential policy framework and illustrates the working for the case of carbon emissions.