##s and loan books. insurance companies face an additional challenge in modelling the implications for their liabilities ( the risks they insure ). it is essential that the financial industry does a good job in taking on this challenge if the switch to sustainable forms of economic activity is to be facilitated and the risks to the household sector ( the ultimate owner of financial assets ) are to be minimised. in terms of supervisory strategies, regulators will need to conduct environmental / climate risk assessments in order to evaluate whether firms are meeting the expected level or risk management. furthermore, consumers and investors require that conduct regulators ensure that climate - related risks are properly disclosed to savers and investors that need to choose among different investment plans. for regulators and supervisors, several steps are required. first, clear expectations need to be laid out for regulated firms. for instance, the prudential regulatory authority in the united kingdom has published a draft supervisory statement that sets out expectations for banks, insurers and investments firms in relation to managing the financial risks from climate change. xiv there are four dimensions to this guidance : ( i ) governance ; ( ii ) risk management ; ( iii ) scenario analysis ; and ( iv ) disclosure. jointly with the financial conduct authority ( fca ), it is also establishing a climate financial risk forum to support best practice in the management of climate - related risks by regulated firms. second, sufficient information is required if climate risks are to be adequately assessed. as reflected in the discussion of climate stress testing above, it is not easy to work out climate risks at the macroeconomic or industry level : the degree of difficulty at the firm level is even more severe, given the variation across firms within an industry and the complexity of supply chains. accordingly, as highlighted by the work of the financial stability board ’ s task force on climate - related financial disclosures ( tcfd ), climate risk assessment requires each firm ( above a scale threshold ) to calculate and disclose its carbon exposures, on the basis of its private corporate information concerning both its current profile and future plans. in turn, at the portfolio level, ultimate savers and investors must rely on the information disclosed by intermediaries in relation to the environmental, social and governance ( esg ) characteristics of the underlying securities. climate change and the irish financial system | central bank of ireland | page 9 for such disclosures to be useful, some degree of standardisation is required in order to ensure comparability. furthermore, a common taxonomy is essential

economic letter climate change and the irish financial system philip r. lane vol. 2019, no. 1 climate change and the irish financial system | central bank of ireland | page 1 climate change and the irish financial system philip r. lane, governor of the central bank of ireland monsignor padraig de brun memorial lecture, nui galway 5 february 2019 in this economic letter, i describe the challenges posed by climate change for the irish financial system. an increase in the frequency of severe weather events has implications for macroeconomic outcomes, asset prices, house prices, credit risks and the cost and coverage of insurance contracts. in addition, the necessary transition to a low - carbon economy ( supported by a phased schedule of increasing carbon taxes ) requires considerable investment by households, firms and the government. if the pace of transition is too slow, a sharper adjustment will be ultimately required, posing macroeconomic and financial stability risks. as the macroprudential authority, the central bank will need to ensure that these financial stability risks are contained by improving the climate resilience of the financial system. as the prudential and conduct regulator, the central bank also has a lead role in ensuring that financial firms incorporate climate change into strategic and financial plans, while ensuring that consumers have sufficient information to navigate the financial risks posed by climate change. introduction our mission statement reads : “ the central bank of ireland serves the public interest by safeguarding monetary and financial stability and by working to ensure that the financial system operates in the best interests of consumers and the wider economy. ” if we are to fulfill this mission, it is a strategic priority for us to address the challenges posed by climate change for the financial system. this holds true for several reasons. first, climate change will be an important influence on macroeconomic outcomes in the coming decades : both directly through weather shocks and the shift towards low - carbon technologies, and indirectly through its impact on the evolving expectations of households and firms about the future trajectory of the economy. i second, although this is not the base case, i will argue later in this lecture that financial stability is threatened if we ignore the systemic risks associated with climate change. third, consumers are financially exposed to climate change through a variety of channels. fourth, given the environmental risks and structural changes in the wider economy associated with the transition to a low - carbon economy, our regulatory policies and supervisory practices must address the financing of the related shifts in the structure of the economy and the investments required to adapt to climate