With economic damage and uninsured losses, climate risks could generate a "green swan," they warned – a reference to the concept of an unpredictable and devastating "black swan" event developed by philosopher Nassim Nicholas Taleb.
"The increase in the frequency and intensity of extreme weather events could trigger non-linear and irreversible financial losses," Francois Villeroy de Galhau, governor of France's central bank, said in the report.
The report said that central banks, which aim to preserve financial system stability, can help by developing the analytical tools to measure climate risks or by investing some of their monetary reserves in "green bonds."
Green bonds finance projects with environmental criteria and are the most common vehicles for green finance.
But there is "no silver bullet", said Luiz Awazu Pereira da Silva, deputy general manager of the BIS, which is often referred to as the central bank of central banks.
The authors of the report said banks on their own could not reduce the financial risks, calling on governments, the private sector and civil society to coordinate efforts.
The BIS in September created a new fund to make it easier for central banks to invest in green bonds.
But current shaky global market conditions mean the take-up of green bonds has been relatively low even though the yields can be just as high as regular bonds. – Rappler.com