Traditional backward-looking models based on historical trends may no longer be reliable, so the development of forward-looking 4 1/4  BIS central bankers' speeches  approaches grounded in scenario-based analyses may be necessary. 4 Perhaps even more importantly, physical and transition risks will likely introduce new strategic risks associated with the challenges and opportunities of sectoral reallocations of economic activity, new production patterns and evolving industry exposures. Range of Practices Given these emerging risks, what are large financial institutions actually doing to identify, monitor, and manage them? This is a new and rapidly evolving field, so we are far from coalescing around best practices or industry standards. Nevertheless, some emerging themes are emerging from the largest, most complex financial institutions. I will touch on governance, risk identification and management, scenario analysis, and transparency. I’ll begin with governance. Boards of directors and senior management are increasingly attuned to the risks posed by climate change as pressure from various stakeholders intensifies. For example, some firms are establishing internal climate-related working groups to develop enterprise-wide climate frameworks and to ensure climate considerations such as geographic concentrations or regulatory changes are better integrated into strategic decision-making. Some senior leaders are discussing risk materiality in geographic and sectoral reviews and results of forward-looking climate scenario analyses. Few firms, however, have formally modified or qualified enterprise-wide risk appetite statements to acknowledge climate to date, although some are considering this. Based on our observations, information flows and detailed climate reporting appear more prevalent at the management committee level rather than boards of directors.

Kevin Stiroh: Climate change and risk management in bank supervision Remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the conference on “Risks, Opportunities, and Investment in the Era of Climate Change”, Harvard Business School, Boston, Massachusetts, 4 March 2020. * * * As prepared for delivery  Introduction Good afternoon and thank you for the opportunity to participate in this conference on “Risks, Opportunities, and Investments in the Era of Climate Change,” a topic of critical importance for all of us. Climate change is already affecting economic and financial outcomes, and projections point to increasingly severe and unpredictable change.1 In recent years, we’ve seen a growing focus of central banks on the financial risks related to climate change. Some may argue that this shift was slow in coming, but the change is striking nevertheless. Beginning with Bank of England Governor Mark Carney’s speech in 20152 , climate change has emerged as a key issue globally. Within the Federal Reserve, Governor Brainard detailed how climate change impacts the Fed’s core objectives around monetary policy, financial stability, financial regulation and supervision, community and consumer affairs, and payments and describes efforts to build capacity to assess these risks.3 Today, I’m going to take a more narrow perspective and talk about climate change from the perspective of risk management.