Green swans and blue skies: Climate change and insolvency risk for financial institutions

This lecture in honour of the late Gabriel Moss QC and Ian Fletcher QC examines the challenge of climate‐related financial risk. Prudential regulators and central banks recognize that the systemic nature of climate‐related financial risk makes it an emerging vulnerability relevant to cross‐border insolvency resolution. The Bank for International Settlements is concerned about potential ‘green swans’, where timing of climate change impacts is uncertain, but there is a high degree of certainty that risks will materialize and negatively affect the financial system. Bank supervisors can mitigate these risks by requiring banks to embed climate in their business strategy, risk management, and governance. Using examples of both hard and soft law tools in Brazil, the UK, and other jurisdictions, the lecture reflects on the most effective regulatory strategies to mitigate risk and build on opportunities.