Introduction

The report analyses climate change-related risks and explains why clear differentiation among them is necessary for effective decision-making. It highlights that climate risk debates often conflate distinct risk types, which weakens policy design, economic planning, and financial risk management, and can lead to ineffective or unintended outcomes.

Purpose of this briefing

The briefing aims to distinguish three categories of climate-related risk—planetary, economic, and financial—and clarify how they differ in scope, time horizon, and responsible actors. The objective is not to impose a rigid framework, but to improve analytical clarity, assign responsibilities appropriately, and support more effective and targeted responses. Clear distinctions are presented as critical to avoiding misuse of financial tools for risks that are primarily planetary or economic in nature.

Understanding varied dimensions of risk

Climate risks are heterogeneous, occurring across different timeframes and affecting stakeholders in distinct ways. The report differentiates between acute risks, such as extreme weather events, and chronic risks that accumulate gradually. It emphasises tipping points, where surpassing critical thresholds can trigger irreversible transformations in planetary, economic, or financial systems.

Risk transmission across categories is often non-linear. Planetary damage may not immediately affect financial markets, and financial risks capture only a portion of broader economic impacts. Compound and spillover risks further complicate assessment. Actors also have different mandates: governments manage planetary risks as a public good, financial markets prioritise risk-adjusted returns, and insurers focus on risk distribution rather than prevention.

Planetary risk

Planetary risks encompass large-scale physical impacts of climate change on ecosystems and human societies. These include floods, cyclones, wildfires, droughts, heatwaves, sea-level rise, biodiversity loss, melting ice sheets, increased mortality, human migration, and loss of livelihoods.

These risks are immediate and ongoing, with potential for irreversible tipping points. Responsibility primarily lies with national and subnational governments and international institutions such as the UNFCCC. The report highlights response strategies including international decarbonisation agreements, public-sector-led transitions in energy, transport, and industry, and public investment and regulation focused on climate adaptation and resilience.

Economic risk

Economic risks refer to the costs arising from physical climate impacts on public and private assets, societal costs such as migration, and transition-related economic disruption, including job displacement. The report stresses that economic risks are a subset of planetary risks, as not all planetary impacts lead to asset devaluation.

These risks typically manifest over the short to medium term and intensify over time. Responsible actors include governments, central banks and macroeconomic supervisors, insurers and reinsurers, and public fund administrators. Suggested responses include insurance coverage adjustments, climate stress-testing to assess impacts on price stability and labour markets, and public investment in disaster preparedness, adaptation, and loss-and-damage management.

Financial risk

Financial risks relate to changes in asset and portfolio valuations driven by planetary and economic impacts, as well as transition policies and societal responses. Examples include asset price volatility, stranded assets, credit default risk, fire sales of climate-exposed assets, and litigation risks. Financial risks are identified as a subset of economic risks, as markets do not reflect all economic losses.

Timeframes vary from near-term shocks to longer-term repricing. Responsibility lies with corporates, banks, investors, financial institutions, and financial stability regulators. Response strategies include adaptation investments, hedging, climate-adjusted investment decisions, integration of climate risk into strategic asset allocation, engagement to reduce risk, and supervisory tools such as climate stress-testing.

Challenges of conflation

The report concludes that conflating risk categories leads to inappropriate data use, weak accountability, misallocation of resources, and flawed modelling. It may also deter investment in high-risk regions, unintentionally worsening planetary risks. Clear differentiation of risk types, responsibilities, and tools is presented as essential for effective mitigation, adaptation, and coordinated climate action.