Climate risks
Climate change is one of the most pressing challenges of our time. Record-high greenhouse gas emissions are the primary cause of current climate change, leading to more frequent and intense extreme weather events, permafrost thaw or lower crop yields.
There are two types of climate risks:
Physical climate risks are risks of losses stemming from the direct impact of climate change-induced natural hazards and long-term shifts in the climate system. Natural hazards include wildfires, floods, heat waves, hurricanes, etc.
Transition climate risks are risks of losses associated with measures to reduce greenhouse gas emissions and adapt to climate change. These measures include tighter regulation, changes in demand, technological shifts, as well as reputational and market factors.
The Russian economy is vulnerable to both physical and transition climate risks. On the one hand, Russia has a vast territory with diverse climatic conditions across its regions. Some regions are already experiencing a growing frequency of droughts, floods, and other natural hazards. According to estimates by Rosgidromet (the Federal Service for Hydrometeorology and Environmental Monitoring of the Russian Federation), the rate of warming in Russia is more than 2.5 times higher than the global average. On the other hand, a high proportion of hydrocarbons and carbon-intensive goods in Russia’s exports amplifies the significance of processes related to the energy transition and decarbonisation of the world economy. Russia’s key trading partners are already directing financial flows to low-carbon technologies and developing climate regulation, which may potentially affect Russian companies.
The materialisation of climate risks for Russian companies could result in lower corporate revenues, higher capital and operating expenses, rising borrowing costs, and heightened credit risks, which would intensify pressure on the financial and fiscal systems in general.
Impact of climate risks on the financial sector.
Therefore, the study of climate risks, the assessment of their potential impact at the micro- and macrolevel, and the development of approaches to incorporate these risks into regulation and supervision are among the focus areas of the Bank of Russia’s work.
Analysis and management of climate risks by the Bank of Russia
The Bank of Russia began to actively study climate risks in 2019, stating in its Financial Stability Review for 2019 Q2–Q3 that these risks could significantly affect the operations of financial institutions and financial stability as a whole. That same year, the regulator joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Since 2020, the Bank of Russia has regularly published information in its Annual Report about its sustainable development efforts, including those related to analysing and managing climate risks.
Stress testing of climate risks
Stress testing is a key tool for analysing the consequences of the materialisation of climate risks.
In early 2021, the Bank of Russia conducted its first stress test to assess the direct and indirect effects of the potential introduction of a cross-border carbon tax in Europe and Asia on Russian non-financial companies and banks.
In 2023, the Bank of Russia carried out a stress test of transition climate risks, examining the scenarios of declining demand for carbon-intensive products. According to preliminary estimates, without any adaptation measures, a large number of companies, particularly in mining and quarrying and the metallurgical sectors, might face a deterioration in their financial performance in the medium term
In 2024, the Bank of Russia conducted its first bottom-up climate stress test together with major financial and non-financial companies. Its results confirmed the preliminary estimates, demonstrating that credit institutions need to manage climate risks and work with their clients on potential measures to enhance their energy efficiency and reduce their carbon intensity.
The Bank of Russia will continue to conduct climate stress tests, working to refine its approaches to assessment.
Recommendations for climate risks embedding for financial institutions
In December 2023, the Bank of Russia issued an information letter with recommendations for financial institutions on integrating climate risks into their risk management systems. The document was prepared taking into account the feedback received during public consultations and contains principles for integrating climate risks into management processes, including identification, assessment, monitoring, the development of response measures, and information disclosures.
In 2024, the Bank of Russia conducted a survey of financial institutions to receive information on the progress of the implementation of the regulator’s recommendations. According to the survey findings, most respondents are factoring in climate risks, but have not yet adopted more active approaches to managing them. The Bank of Russia plans to update its recommendations for financial institutions on factoring in climate risks and will continue its monitoring to track the progress and identify challenges.
Monitoring of climate and environmental strategies of Russia’s largest non-financial companies
To estimate the current maturity level of Russia’s largest non-financial companies in terms of climate and environmental issues, the Bank of Russia regularly monitors their strategies. The most recent analysis (available in Russian only) encompassed 41 entities from sectors most exposed to climate and environmental risks.
The monitoring showed an improvement in the quality of climate-related disclosures by companies and a more vigorous and ambitious target-setting in this area as compared to 2022.
There is a number of factors that encourage companies to incorporate climate and environmental initiatives into their strategies and operations. In 2025, the Bank of Russia expanded the scope of its risk-based incentive regulation and introduced incentives for financing priority sustainable development projects. The incentives apply to loans and bonds aimed at financing priority sustainable development projects identified in the updated version of the sustainable development taxonomy. Such projects may enjoy from 10 to 50% risk-weight discount depending on their quality. This will allow Russian credit organisations to finance a greater number of green and transitional priority projects by reducing the burden on banks’ capital without additional financing from the budget.