Climate change poses a bigger threat to financial stability than the coronavirus pandemic and the rules on bank lending to fossil fuel groups must be tightened to address it, a new report has warned.

In his latest research for the Finance Watch advocacy body, Thierry Philipponnat — a board member at the French financial regulator, and one of the EU’s technical experts on sustainable finance — has recommended increasing the risk weightings banks must apply to their oil, gas and coal exposures.

This would make them treat fossil fuel lending in the same way as other risky investments, increasing their capital requirements to insulate them against possible losses. Banks would therefore have more protection against the risk of carbon assets becoming “stranded” if demand falls — or the risk of costly climate disruption if it does not.