Physical climate risk is materialising faster than financial systems are adapting to it. Despite increasing awareness across the financial sector, credit risk frameworks remain calibrated on historical data, insurance is treated as a static condition of lending, and investment in adaptation and resilience (A&R) continues to be systematically undervalued in credit decisions. The result is a financial system that is, in aggregate, accumulating climate risk faster than it is pricing it.
The Resilience-Adjusted Credit Risk (RACR) framework, developed through a programme of expert interviews, literature review, and multi-stakeholder consultation, proposes a structured approach to integrating physical climate risk, insurance adequacy, and A&R investment into standard credit assessment. It adjusts the core credit metrics of Probability of Default (PD) and Loss Given Default (LGD) to reflect both borrower exposure to physical hazards and their capacity to manage and reduce that exposure.
This closed-door roundtable convenes senior representatives from across the financial system to move from framework to action, identifying where coordinated progress is most immediately achievable and what each actor group needs to move first.
For more information, please contact Banking Environment Initiative at bei@cisl.cam.ac.uk
