Core Viewpoint - The Federal Reserve's past actions in the area of climate policy have been described as "minimal" [1] Group 1 - The Federal Reserve is considering withdrawing guidance related to climate risks [1]

Group 1: International Monetary System - The international monetary system is evolving towards a multipolar structure, which can enhance the resilience of the system and maintain global economic stability [2][3] - Discussions on reforming the monetary system focus on reducing reliance on a single sovereign currency and exploring the use of a supranational currency, such as the IMF's Special Drawing Rights (SDR) [2][3] - SDR is seen as a potential solution to the inherent issues of a single sovereign currency, offering greater stability and the ability to better fulfill global public goods functions [3] Group 2: Cross-Border Payment System - The cross-border payment system is crucial for international trade and financial stability, but traditional systems face challenges such as inefficiency and high costs [4][5] - There is a growing trend towards diversification in the cross-border payment system, with more countries using local currencies for settlements and new payment systems emerging [4] - Emerging technologies like blockchain and distributed ledger technology are reshaping the payment landscape, enabling faster and more efficient cross-border transactions [5] Group 3: Global Financial Stability System - The global financial stability system has evolved post-2008 financial crisis, but it faces new challenges such as fragmented regulatory frameworks and insufficient oversight of emerging financial sectors [6][7] - There is a need for stronger international cooperation to prevent regulatory arbitrage and enhance the stability of the financial system [6] - Strengthening the IMF as a core institution for global financial safety is essential for crisis prevention and resolution [7] Group 4: Governance of International Financial Organizations - Calls for reform in international financial organizations are increasing, as current governance structures do not reflect the economic realities of emerging markets and developing countries [8] - Adjusting the voting rights and quotas in organizations like the IMF is crucial for enhancing the representation and voice of these countries [8] - The legitimacy and effectiveness of international financial organizations depend on their ability to adapt to the changing global economic landscape [8]

Core Insights - Italy is identified as one of the EU countries most vulnerable to climate risks, with significant impacts on infrastructure and small to medium-sized enterprises (SMEs) due to extreme weather events [1][3] Group 1: Extreme Weather Events - The frequency of extreme weather events in Italy has increased, with 351 recorded incidents in 2024 compared to only 60 in 2015, affecting agriculture, manufacturing, and logistics [2] - From 1993 to 2022, climate-related extreme weather events resulted in over 765,000 deaths globally, with approximately 38,000 fatalities in Italy, making it the fifth most affected country during this period [2] Group 2: Impact on SMEs - Italy's economy is heavily reliant on SMEs, which are particularly vulnerable to climate impacts due to their limited economic buffers and lack of diversified market structures [3] - Many SMEs in Italy are concentrated in agriculture and light industry, sectors that are highly sensitive to environmental changes, and often lack adequate commercial insurance and climate risk management strategies [3] - In 2023, extreme weather events led to a 22% increase in claims, amounting to €6 billion, but actual economic losses are believed to be much higher due to insufficient insurance coverage [3] Group 3: Policy Recommendations - The IMF has urged the Italian government to adopt more ambitious measures to address environmental crises, warning that climate shocks could suppress economic growth and further constrain fiscal space [4] - Legambiente has called for legal measures to prevent further soil degradation and promote sustainable agricultural practices, emphasizing the need for a more resilient national water resource management strategy [4][5]

Core Viewpoint - Climate risk has evolved from a marginal issue to a central theme in the global economy and investment landscape, reshaping industry structures and capital flows [4][6]. Group 1: Physical Risks - Physical risks refer to the direct impacts of extreme weather events and long-term trends caused by climate change on the economy and society. For instance, Europe experienced a 2.4°C increase in average temperature over the past five years, with 2024 projected to be the hottest year on record, leading to significant economic losses [6][10]. - Asia faces severe challenges as well, with India experiencing unprecedented heatwaves in 2024, resulting in a 15% reduction in food production, and the Pacific island nation of Tuvalu facing existential threats due to rising sea levels [6][10]. Group 2: Transition Risks - Transition risks arise from changes in policies, technologies, markets, and perceptions associated with the shift to a low-carbon economy. For example, the Dutch court mandated a local energy company to reduce emissions by 45% over ten years, or face substantial fines [7][10]. - The shift in consumer preferences towards green products has led to a decline in demand for fossil fuel vehicles, while companies with poor environmental performance risk losing public trust [7][10]. Group 3: Challenges to the Paris Agreement - The Paris Agreement aims to limit the global average temperature increase to below 2°C compared to pre-industrial levels, with efforts to restrict it to 1.5°C. However, the current trajectory shows a 1.55°C increase, with extreme weather events becoming more frequent, posing significant threats to ecosystems and human society [10][11]. - The gap between current greenhouse gas emissions and the reductions needed to meet the 1.5°C target is substantial, necessitating immediate and stronger measures to mitigate climate change [10][11]. Group 4: Impact on Financial Markets - Climate risk has become a crucial factor in financial market pricing, with physical risks affecting infrastructure and corporate operations, thereby increasing credit risk. Transition risks lead to the depreciation of high-carbon assets, exacerbating market volatility [11][13]. - Investors are shifting their risk preferences towards low-carbon sectors, further amplifying market instability through capital reallocation [11][13]. Group 5: Global Actions - Policy initiatives are driving the global race towards carbon neutrality, with China’s carbon market covering approximately 4.5 billion tons of CO2 emissions, the largest globally. The U.S. Inflation Reduction Act allocates $369 billion to energy security and climate initiatives, while the EU's Carbon Border Adjustment Mechanism (CBAM) imposes additional tariffs on carbon-intensive imports [14][16]. - The renewable energy sector is witnessing significant growth, with investments in renewables surpassing fossil fuels for the first time globally. In Europe, renewable energy generation is expected to account for 45% of total generation in 2024 [16][17]. Group 6: Chinese Listed Companies - Domestic regulations are tightening, with stock exchanges enhancing ESG disclosure rules, compelling companies to establish climate risk management systems and improve sustainability capabilities [18][19]. - International compliance challenges arise from the EU's CBAM and U.S. SEC requirements for climate risk disclosures, necessitating companies to develop low-carbon management systems to convert compliance pressures into competitive advantages [18][19]. Group 7: Asset Management Institutions - Climate risk has increased uncertainty in asset pricing, with physical risks potentially leading to asset impairments and transition risks affecting high-carbon industries. Regulatory pressures are rising, requiring institutions to integrate climate factors into their risk management frameworks [20][21]. - The low-carbon transition presents strategic opportunities for asset management firms, with a focus on high-growth sectors such as renewable energy and green transportation, allowing for early positioning in key industry segments [20][21]. Group 8: Climate Risk Management Framework - The Task Force on Climate-related Financial Disclosures (TCFD) provides a systematic methodology for institutions to manage climate risks, emphasizing the need for board-level integration of climate issues into strategic decision-making [22][23]. - The ISSB standards released in 2023 build upon TCFD principles, enhancing requirements for emissions disclosures and climate resilience analysis, pushing climate information disclosure from voluntary guidelines to mandatory standards [22][23]. Group 9: Practical Applications by Asset Management Firms - The firm has integrated climate risk management into its investment processes, utilizing ESG ratings and carbon emissions data to monitor investment portfolios and conduct climate scenario analyses [25][26]. - Engaging with listed companies on climate risk and sustainability issues, the firm aims to assist in developing climate risk management systems and seizing opportunities during the transition [25][26]. - The firm has joined global initiatives to promote responsible investment practices, sharing experiences and participating in standard-setting to foster a resilient sustainable investment ecosystem [25][26].