Executive Summary
UNEP Copenhagen Climate Center’s paper, based on the Greening the Financial Sector in Malawi project, argues that central banks and financial regulators in emerging markets and developing economies should treat climate change as a core mandate, but not as a rush job. Its central lesson is sequential: first build institutional ownership, human capacity, and coordination; then expand into climate tools once the supporting taxonomies, disclosure frameworks, datasets, scenarios, and implementation systems are in place. The paper is explicitly positioned as practical guidance for EMDEs and least developed country settings, where the challenge set is materially different from that of advanced economies and where the literature remains comparatively thin.
Climate Risk Is Now Part Of Core Stability Mandates
UNEP-CCC explains that climate-related financial risks reach the financial system through physical and transition risks. Physical risks include floods, wildfires, drought, sea-level rise, and extreme temperatures that damage assets, reduce productivity, weaken borrower repayment capacity, and increase pressure on credit markets; transition risks arise from policy change, technological shifts, and changing consumer behavior during the move to a low-carbon, climate-resilient economy, including stranded-asset risk under a disorderly transition. On that basis, the paper frames the CBFR response around two objectives: ensuring climate-related financial risks are properly understood and managed across the financial system, and, where legal mandates permit, supporting climate finance for mitigation and adaptation. It also notes that the available toolset is broad, spanning climate-related risk management and disclosure guidance, climate scenario analysis, targeted refinancing operations, climate-adjusted collateral management, reserve requirements, and direct credit guidance.
Implementation Gaps Still Define The EMDE Starting Point
The paper is equally clear that climate-tool adoption in EMDEs is constrained less by ambition than by readiness. Citing World Bank analysis of 10 emerging climate tools, it reports that only 3 had sufficient supporting evidence, 5 showed potential but required more evidence, and 2 were not recommended because available evidence suggested they were ineffective or could undermine financial stability. UNEP-CCC then identifies the main operational barriers: limited regulator capacity, weak capacity in financial institutions, underdeveloped climate policy frameworks, gaps in taxonomies and disclosure frameworks, incomplete data and modeling capability, and shallow financial markets. One of the sharpest signals of the infrastructure deficit is taxonomy coverage: only 10 percent of EMDEs are covered by green taxonomies, compared with 76 percent in advanced economies. The paper also notes that tools commonly used elsewhere, including the NiGEM model, are not sufficiently granular for many EMDE applications.
Malawi Shows Why Sequencing Matters In Practice
Malawi is the paper’s most useful case because it concentrates on the conditions that many standards and supervisory teams need to plan for. UNEP-CCC describes Malawi as a least developed country where 70 percent of the population lived on less than $2.15 a day in 2019, and where climate vulnerability ranked 161st of 187 in the Notre Dame Global Adaptation Initiative ranking cited in the paper. Its financial system is dominated by a traditional, highly risk-averse banking sector with relatively small pension and insurance sectors and underdeveloped capital markets, and climate-risk management was still highly nascent at baseline: only 14 percent of surveyed institutions had integrated climate risk management into internal governance structures, less than half had integrated climate change into their risk-management framework, and only 29 percent had attempted to assess their exposure or vulnerability to climate risks. In response, the Malawi project combined a baseline assessment, a benchmarking exercise, and a feasibility and capacity-needs assessment, after which the final report prioritized internal human-capacity development and institutional arrangements before full climate integration.
The Standards-First Roadmap Is Institutionalize, Coordinate, Then Scale
The paper’s six practical reflections amount to a standards-first roadmap for EMDE regulators: institutionalise climate through a dedicated cross-departmental structure; use free training materials to build baseline knowledge; learn from peer networks such as the Network for Greening the Financial System and the Sustainable Finance Network; coordinate closely with ministries of finance and environment; recognize that those ministries may also need capacity building; and adopt a measured, multiyear, phased approach so climate tools are introduced only when staff capability, data, scenarios, taxonomies, disclosure infrastructure, and implementation resources are in place. That sequence was already visible in Malawi after the report’s launch in November 2024, when the Reserve Bank established a Climate Change Center and, by April 2025, was integrating climate-related capacity needs into its training plan. Read through a standards-first lens, the takeaway is direct: durable climate regulation in EMDEs depends less on announcing a large toolkit than on building the governance and operating architecture that enable the right tools to work without compromising price or financial stability.
Frequently Asked Questions (FAQs)
- What is the paper’s main recommendation? The paper’s main recommendation is that central banks and financial regulators in EMDEs should adopt a phased, multiyear response to climate change that starts with institutionalization, coordination, and capacity building before wider tool deployment.
- Why does the paper treat climate change as a core central bank and regulatory issue? The paper treats climate change as a core issue because physical and transition risks can affect asset values, repayment capacity, credit conditions, financial stability, and the transmission of monetary policy.
- Why is Malawi such an important case in the paper? Malawi matters because it combines high climate vulnerability, widespread poverty, underdeveloped capital markets, and limited climate-risk management maturity, making it a useful peer case for other EMDE and least developed country regulators.
- Are all climate tools ready for immediate use across EMDEs? No. The paper says evidence remains limited for many climate tools, and their viability depends on mandate, market structure, taxonomy coverage, disclosure infrastructure, data availability, and technical capacity.
- What should regulators do first if they are just starting their climate work? The paper’s first move is to institutionalize climate change within the organization through a dedicated, cross-departmental structure or focal point to coordinate expertise, external engagement, and implementation.
Sources
- UNEP Copenhagen Climate Centre. (2026a). Supporting central banks and financial regulators in emerging markets and developing economies in their response to climate change [Publication page].
- UNEP Copenhagen Climate Centre. (2026b). Supporting central banks and financial regulators in emerging markets and developing economies in their response to climate change: Insights from the project Greening the Financial Sector in Malawi [Report]. Copenhagen, Denmark: Author.
Ready to get started? To learn how ClimaTwin can help you assess the physical and financial impacts of future weather and climate extremes on your infrastructure assets, capital programs, and investment portfolios, please visit www.climatwin.com today.
© 2026 ClimaTwin Corp. All rights reserved worldwide.
ClimaTwin® is a registered trademark of ClimaTwin Corp. The ClimaTwin logos, ClimaTwin Solutions™, Climate Risk Intelligence™, Climate Business Intelligence™, Climate Value at Risk™, Future-proofing assets today for tomorrow’s climate extremes™ are trademarks of ClimaTwin Corp. All trademarks, service marks, and logos are protected by applicable laws and international treaties, and may not be used without prior written permission of ClimaTwin Corp.
###