| Summary: |
Although climate change poses a serious threat to macrofinancial stability and economic development, the global financial safety has so far failed to sufficiently address this challenge. This article reviews the extent to which the International Monetary Fund (IMF) has started to integrate climate change in its analytical and operational frameworks, showing significant shortcomings in addressing the risks emanating from climate change. Regional financing arrangements (RFAs) have to date not engaged or only very little in addressing climate-related risks. Against this backdrop, this article argues that the IMF and also RFAs need to climate-proof their policies and frameworks and puts forward eight recommendations: (i) mainstream systematic and transparent assessments of climate-related financial risks in all operations; (ii) introduce consistent, systematic, and universal appraisal and treatment of physical and transition risks in surveillance and monitoring for all countries; (iii) ensure that all policy recommendations are aligned with the Paris climate goals; (iv) advance disclosure of climate-related financial risks and promote sustainable finance and investment practices; (v) support member countries in mainstreaming climate risk analysis in public financial management; (vi) support climate-vulnerable countries in dealing with debt sustainability problems; (vii) develop lending instruments for climate emergency financing; and (viii) in the case of the IMF, explore options to use SDRs to support climate-vulnerable countries.
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