At a recent Green Swan conference, the world’s top central bankers agreed they had a clear role to play in tackling climate change. Climate stress tests may prove the most powerful tool to nudge the financial system. According to a recent climate stress test by the French central bank, insurers were far more affected than banks as the exercise suggested that extreme weather could quintuple the cost of related insurance claims by 2050. This will set the premiums to shoot up by 130-200%.

Other central banks around the world will also be conducting similar tests considered to be crucial in repricing the cost of capital between companies. Will climate stress tests be effective?