Climate change has rapidly grown to become a crisis in the turbulent and unstable times we are confronted with. Increasingly severe weather has become more common within the past few years. 2020 has been one of the hottest years within the past decade. It has also had one of the most calamitous wildfire seasons ever recorded. As extreme/catastrophic weather intensifies, the global climate crisis risks now extend to financial institutions as many conduct business in risk-prone regions. These risks include but are not limited to physical and transitional risks (fig.1 for prudential risks resulting from physical and transitional factors). In 2017, the Network for Greening the Finance System (NGFS) was established with the overall aim of combating climate change from a financial perspective, providing recommendations to financial institutions on how to operate with a less carbon-intensive footprint.

Since then, many central banks such as the ECB have joined the organization. Remarkably, the Federal Reserve Board joined the NGFS in December of 2020, highlighting the domestic concern and need for climate change action. Furthermore, the NYS Department of Financial Services (DFS) issued a letter to the executives of financial institutions expressing the need for banks to urgently consider climate change, potentially leading to increased regulation on financial institutions from a climate change standpoint. This presents the opportunity for US banks to incorporate NGFS recommendations through several actionable steps.