Sarb warns of climate change woes on financial stability

Reserve Bank identifies climate change as one of three major threats to the stability of SA

- SIPHELELE DLUDLA

THE South African Reserve Bank (Sarb) has issued a stern warning regarding the perpetual risks that climate change poses to the financial sector.

In its latest Financial Stability Review (FSR) published on Thursday, the Sarb identified climate change as one of three major threats to the financial stability of the nation, alongside the looming spectre of cyber incidents and persistently low economic growth.

In the review, the Sarb highlighted a growing consensus within academic and regulatory literature that climate change introduces two primary types of risks: physical risks and transition risks.

Physical risks are defined as the economic losses stemming from the increasing frequency and intensity of adverse weather events, such as floods, droughts, and storms—a trend already observable in South Africa.

On the other hand, transition risks are exacerbated by an uncoordinated global response to climate change, where financial institutions face challenges in recognising, preparing for, and complying with evolving climate-related regulations.

With South Africa's financial system significantly exposed to carbon-intensive activities and assets, the bank warned that the country was particularly vulnerable to these insidious risks.

Sarb Governor Lesetja Kganyago said the risk of a disorderly global shift to a low-carbon economy had intensified as countries transition at varying paces.