Financial institutions must wake up to the risks of climate change and its impact on the medium to long term security of their assets and liabilities, according to a new report by Louis Perroy of merc

The report highlights that current financial models and assumptions do not adequately factor in climate change, leaving investments exposed to significant risks in the medium to long term.

The report identifies three major effects of climate change.

- Direct physical impact on assets: asset investments in the financial sector will be affected, while catastrophe reinsurance and insurance claims will worsen across all industry sectors.
- New regulations, mitigating climate change (such as the Kyoto protocol) will affect greenhouse gas emitting sectors, such as oil, gas and energy, among others, in which the financial institutions are a major investor.
- The catastrophic global reach of climate change is likely to have negative macroeconomic consequences, which in turn will impact on financial assets.

The report makes a series of recommendations, including the need for further research to be carried out into the impact of climate change on natural catastrophes, mortality and morbidity rates and health. Additionally, the report suggests a review of the assets and liability management model and calls for greater disclosure.