On Monday May 5th 2025, AnsvarligFremtid (Responsible Future) hosted the conference “Climate risks in the financial sector” at Christiansborg, the National Parliament building in Copenhagen.
The purpose of the conference was to learn more about whether the financial world is sufficiently aware of the long-term risks that climate change poses to their businesses.
The conference was officially hosted by MEP Sigurd Agersnap (Socialist Party) and the moderator was Lotte Folke Kaarsholm, opinion editor at national newspaper Dagbladet Politiken.
Watch or re-watch the entire conference and read a short summary of the conference’s three expert presentations and subsequent political debate below.
Presentation #1: Physical Tipping Points – Susanne Ditlevsen (professor, University of Copenhagen)
The first presentation was delivered by Professor Susanne Ditlevsen (University of Copenhagen) who reviewed our knowledge of climate-critical tipping points. She explained the wide range of climatic tipping points that have been identified, such as the melting of the Greenland Ice Sheet and the Antarctic Ice Sheet, the collapse of the Amazon rainforest and changes in the ocean currents in the Atlantic, including in particular the AMOC (Atlantic Meridional Overturning Circulation).
Susanne stated that if these tipping points were triggered, it would have very catastrophic effects, especially because several of these tipping points could in themselves contribute to triggering other tipping points. Although there is still uncertainty about when and to what extent these tipping points will be triggered, it will be extremely valuable if you can predict such tipping points well in advance, either to strengthen the efforts to avoid them occurring, or alternatively to better prepare for the consequences of them.
She further explained that the researchers have developed analysis tools so that they are now better able to measure whether the different climate systems have begun to behave differently than before, for example by measuring the variation in ocean currents. Specifically in relation to the AMOC, she emphasized that her own studies (1), but also other researchers pointed out that it was very likely that the AMOC will collapse already before the end of this century.
Finally, however, she recommended that no matter what, one should take urgent action on reducing global emissions in order to reduce the chance of triggering catastrophic tipping points.
Presentation #2: Economic Tipping Points – Thierry Philipponnat (Chief Economist, Finance Watch)
The second presentation was delivered by Thierry Philipponnat, Chief Economist at Finance Watch.
Thierry explained how climate change differs very significantly from other types of financial risks and financial disasters that the financial sector has been exposed to in the past, and which we have experienced and which we have always overcome, even if they have hit the global economy very hard for a short period of time. But while most other risks such as interest rate fluctuations, pandemics, trade crises, energy crises and the like (only) have a certain probability of hitting us, we know with 100% certainty that climate change will affect us all, and that the consequences of a 3-degree temperature increase will be enormous.
We also know that climate risks will only accelerate and thus increase sharply in strength, that climate risks will not go away because they are irreversible in the first place, and that they are very likely to be downright devastating for countries, regions and even the entire global economy.
Thierry said that the network of green central banks (NGFS), which today is the most influential and respected player in this area, has contributed to a much better understanding of long-term climate risks with their climate risk modelling work over the past few years. But even though NGFS’s work has been essential, their analyses are unfortunately still inadequate and significantly underestimate the real risk, and on closer inspection, their conclusions are inaccurate and inconsistent with the physical science, as described by Finance Watch (2).
As an experienced economist, Thierry acknowledges that economic climate risk models are far from being an exact science, and that the optimal climate risk model is impossible to develop. But no matter how difficult it is to develop accurate models, we should strive to develop models that are better and more realistic than those we have now. But it is a problem that NGFS and most other economists, central banks, etc. are based solely on models with a very conservative (square) modelling, resulting in unrealistically small damage estimates. Such models are unsuitable for calculating climate-related risks, which have the potential to show an accelerating development.
Specifically, this means that while the NGFS calculates that 3-degree global warming (the so-called “Hot House Scenario”) will result in an economic loss of 3% (which is considered negligible), with other and presumably more realistic models, much greater economic losses will be achieved (35% with a logistical model, and 48% with an exponential model). And the NGFS does not even factor in the damaging effects of global sea level rise or of social consequences such as mass migration, which the IPCC tells us will affect as many as 4 billion people at a temperature increase of 3 degrees, because a large part of the planet will become uninhabitable.
Climate change also has a clear impact on the risk of stranded assets in today’s massive investments in fossil energy. As much as 75% of the known reserves (“proven reserves”) of coal, oil and gas must remain in the ground if the world is to keep the global temperature rise below 2 degrees. The largest banks’ investments in the fossil fuel sector alone correspond to the same amount that was lost during the financial crisis (subprime crisis) in 2008. This potential “investment bubble” poses a major risk in its own right.
According to Thierry, there is unfortunately a reluctance among officials working in and around the European central banks and financial supervisory authorities. They simply do not dare to go public and tell the inconvenient truth about the long-term economic consequences of climate change. The consequence is that politicians do not act on an informed basis and therefore fail to increase climate action. But we need to put an end to this type of self-censorship among officials, and the supervisory authorities must, unlike now, start using scientifically realistic models and enforce supervision accordingly if we are to succeed in getting politicians to give the climate crisis the attention it requires to protect the financial sector and our society.
Presentation #3: The role of the authorities in the management of financial climate risks – Carsten Brogaard (Danish FSA)
The third presentation from Carsten Brogaard, Deputy Director General of the Danish Financial Supervisory Authority, explained how the Danish Financial Supervisory Authority’s overall responsibility is to ensure that the Danish financial sector is robust and orderly.
Carsten made it clear that the supervisory authority does not currently have an actual mandate to ensure goal fulfilment in the areas of climate or biodiversity, but noting instead that the supervisory authority’s role in ensuring robustness and confidence in the financial system indirectly supports the political goals for societal development, including climate goals. Carsten also briefly talked about the role of the supervisory authority in carrying out the sustainability supervision (ESG supervision), and here ensuring that financial actors use accurate and specific sustainability information to avoid greenwashing, that the financial actors have sufficient ESG integration in their risk management, and that they deliver products that fit the customer’s ESG preferences.
Carsten then explained how the financial risks due to climate change (climate risks) are divided into physical risks (e.g. floods, heat waves, droughts, fires and storms) and that these risks can materialize through higher damage costs, destruction of value chains and business models, loss of value of assets and perhaps changes in the life duration of those assets. The second category is the so-called transition risks, i.e. how the transition to a more CO2-neutral economy, e.g. forced by new regulation and other political initiatives, changed consumer behavior and technological advances, can materialize through a loss of value of assets.
The role of the Danish Financial Supervisory Authority is to enforce a number of regulatory requirements regarding climate risks in relation to insurance, pensions and banks. In Europe, we have experienced increasing requirements under the so-called Solvency II Regulation, which means that financial actors must increasingly relate to climate risks in their investments and risk management, as well as assessment of own risk and solvency, including by conducting analyses based on two long-term climate scenarios. In addition, all major financial undertakings must have specific transition plans with quantifiable targets and processes to monitor and address financial climate risks, including in the long term.
Carsten then presented the Danish Financial Supervisory Authority’s experience from an initial project on climate stress testing of selected number of Danish credit institutions and insurance companies, experiences that were published in the summer of 2024 (3). Their experience showed that there is a big difference in the institutions approach to modelling the effect of transition risks, while the approach to flood risks for properties seems to be relatively uniform, partly because we in Denmark have a close and ongoing dialogue with Danish Meteorological Institute (DMI) about weather data. It was clear that the data basis for the performance of climate stress tests is still under construction. Some of the data are based on calculated rather than observed data, which indicates that there is a need for companies to familiarize themselves with the degree of uncertainty behind the data points used. Carsten Brogaard acknowledged that “YES, it is a difficult area”, but that this is not an excuse for not doing the reporting, and that the companies should start by doing the reporting as well as they can and follow the future developments in the area in the expectation that a consensus will be established about how to use models and perform analyses. Carsten emphasized that both authorities and the financial sector are in a (steep) learning phase in relation to establishing a common standard for good risk reporting and associated climate action plans. Thus, the Authority is not yet able to set specific requirements for the analyses and reporting to be prepared in a certain way. It is therefore still too early for the Danish Financial Supervisory Authority to provide much clearer instructions on the implementation of measures to qualify and quantify the impact of various climate risks.
Carsten then presented the Authority’s experience with the so-called ORSA reports, which the Authority has followed over a number of years. In September 2024, the Authority published its preliminary experiences in the memorandum: “Opinion and guidance on the treatment of climate risks in the ORSA report” (4). The Authority concluded that despite continuous improvements in reporting from pension funds, life insurance and non-life insurance companies, it is a major problem that as many as 66 per cent do not follow EIOPA’s guidance in this area. From year 2027, this reporting will become a legal requirement. There is a special focus on the non-life insurance industry, which has so far had relatively short-term considerations about the impact of climate change, and thus, there seems to be a need to see whether the business model is fundamentally sustainable over the long horizon.
Carsten took the opportunity to explain some of the fundamentals in the legislation regarding the prudent person principle, including the consideration of maximizing economic returns, and he summarized how the public can gain insight into companies’ reporting on climate risks, including in the form of information in Annual Reports (CSRD-reporting), reporting in accordance with SFDR reporting requirements and in the so-called SFCR reporting, which from January 2027 must also include climate scenario analyses.
Carsten concluded by responding to the growing concern about whether the insurance industry is prepared for future climate change. Based on a recent EIOPA report that looked at the so-called “Protection Gap”, the immediate conclusion was that Denmark is placed in the better end with a small protection gap, where only a small part of the value of the Danish society is not insured. In a future scenario where insurance payments linked to climate change catastrophes increase, it will be natural for insurance companies to raise their prices. In relation to insurances that are already not profitable as a business area for commercial insurance companies (e.g. those covered by the Danish Natural Hazards Council), it is in the political space that a decision must be made as to whether there is a need for further regulation here.
Panel debate: How do we protect our assets against climate risks?
Both Tom Vile (Insurance & Pension, F&P) and Niels Madsen (Danske Bank) acknowledged that there are long-term climate risks, and that even though the financial sector is yet not good enough at factoring risks into long-term investments because the models are flawed, this should not lead to paralysis and inaction. Even if there is great uncertainty about the models and their use, e.g. for long-term financial solvency reporting, you should dare to be guided by imperfect tools. Danske Bank has conducted long-term climate stress tests itself, and the assessment shows, that the bank is equipped to handle even a very severe economic crisis caused by climate change. However, Danske Bank’s immediate main focus today is to analyze the risks associated with specific customers and industries as a result of new climate policy regulation (such as the Climate Law on Danish agriculture, the new Building Directive and CO2 tax on Danish industries), so that they can advise their customers and offer them the right solutions to support these companies’ green transition. Tom Vile emphasized that the insurance and pension industry has also taken initiatives to mitigate risk, and in particular the industry’s “Green Investment Commitments” and “Contributions to the Debate on Storm Surge Protection” are significant contributions in this direction. Tom Vile also emphasized that we as a society have an obligation to make green solutions a good business, and that F&P and the financial industry would very much like to contribute to political solutions to get there.
Christina Olumeko (Å) expressed great concern about the long-term climate risks, and she did not feel reassured that neither the financial actors nor the politicians “have control over the long-term climate risks”. She expressed great concern that we will end up in an economic collapse that will be far worse than the financial crisis. And despite the fact that great efforts are being made to develop even better risk models, she did not believe that it would be possible to model all of the real effects that can arise from climatic tipping points, and that political policy needs to be at the forefront and strengthen climate policy regulation, e.g. by stopping oil/gas exploration permits and stopping financing for fossil expansion. But she also advocated, that climate considerations should be a mandatory element in our interpretation of fiduciary duty.
Mette Reissmann (Social Democratic Party) acknowledged the need for political regulation, but recommended that the substantiative and already adopted political regulation in Denmark should also be given time to work. She also stressed the importance of ensuring that regulation is not implemented so harshly and so quickly that it has serious social consequences, increases inequality and challenges our aspirations of also achieving fair and social justice. She also stated that we basically have sufficient knowledge about the extent of the problem, and that the real responsibility and problem lies with the politicians. However, she stated that the problem must primarily be solved at the EU level, but that we in Denmark should take the lead in developing solutions that can also strengthen Danish competitiveness.
Sigurd Agersnap (Socialist Party) believed that our current policy (and lack of taking responsibility) to a large extent risks leaving a huge bill in the children’s room. And it is worrying that the EU and Denmark are currently weakening the green ambitions by relaxing the requirements for companies’ work with sustainable transition and climate reporting (CSRD).
In the ensuing debate with questions from the audience, a lot of focus was placed on the increasing risk of flooding in Denmark. One listener encouraged to use the very detailed mapping of Denmark in connection with the implementation of the Climate Law on Danish agriculture, to ALSO identify land areas that need to be secured in relation to the coming flooding from storm surges or increasing rainfall. All 3 politicians and F&P clearly set the stage for an important social debate on how we as a society should or should not set limits for where new building construction should be allowed in areas that are exposed to major physical climate risks. From several people at the conference, it was emphasized that it is a major problem that many municipalities continue to establish new construction (or re-establish construction) in high-climate-risk areas, and that the Danish Parliament must take joint responsibility for tightening the requirements for how much risk appetite the municipalities can allow be when they develop local plans, etc.
Thank you to all the speakers and panelists, to the KR Foundation for supporting the conference – and not least to everyone who came and listened and participated in the debate.
Selected References
1) Susanne & Peter Ditlevsen, “Warning of a forthcoming collapse of the Atlantic meridional overturning circulation” | Nature
2) Greg Ford, “Bridging the gaps in climate scenarios” | Finance Watch
3) Erfaringsopsamling om klimastress i finansielle virksomheder | Danish Financial Supervisory Authority
4) Forsikringsvirksomhedernes behandling af klimarisici i ORSA-rapporten | Danish Financial Supervisory Authority