Regulatory Evolution and Adaptive Governance

The dynamic nature of climate risk requires an equally dynamic regulatory response. Traditional regulatory frameworks, designed for more stable and predictable risks, must evolve to address the unique challenges posed by climate change. This evolution requires a careful balance between maintaining financial stability and enabling necessary innovation.

Regulatory approaches must become more forward-looking and scenario-based, moving beyond historical data to incorporate potential future climate trajectories. This shift demands new supervisory tools and methodologies, including enhanced stress testing frameworks that can capture complex climate-related risks.

The concept of adaptive governance becomes particularly relevant in this context. Regulatory frameworks must be flexible enough to respond to emerging risks while maintaining consistency and predictability for market participants.

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