What is one possible outcome of effective climate risk management for financial institutions?

Effective climate risk management for financial institutions can lead to enhanced reputational credibility and stability. When a financial institution proactively addresses climate risks, it demonstrates commitment to sustainability and responsibility, which are increasingly important to stakeholders, including investors, customers, and regulators. This proactive approach can improve the institution's reputation, fostering trust and loyalty among clients and investors concerned about environmental, social, and governance (ESG) issues.

Moreover, as consumers and investors become more aware of climate risks, those institutions that manage these risks effectively position themselves as leaders in the market, potentially attracting more business and investment. Stability can be enhanced as well, since by identifying and mitigating climate-related risks, financial institutions can protect their assets and ensure more predictable returns, which is appealing for long-term planning and investment.

In contrast, options that suggest outcomes like higher carbon emissions or increased investment in unsustainable practices run counter to the goals of effective climate risk management. Greater regulatory oversight might indeed be a byproduct of inadequate risk management, but it is not an intended positive outcome of effectively managing climate risks.