A new paper authored by Sayuri Shirai, ADBI Fellow at the Asian Development Bank Institute (ADBI), explores how banks can utilise catastrophe bonds and puts forward an interesting suggestion, that as sponsors or co-sponsors, banks could bundle the climate exposure from their other assets into cat bonds to hedge against growing climate risks.
The report highlights that climate change has become a direct and material risk to financial stability.
“For banks, physical hazards, ranging from acute events such as floods, storms, wildfires, and heatwaves to chronic stressors such as sea-level rise and long-term temperature increases, can impair asset quality, erode collateral values, and disrupt client operations,” the paper reads.
FULL ORIGINAL PUBLICATION HERE