This report outlines climate transition risk and its importance to Chinese financial institutions. It contains an in-depth review of current methodologies used by financial institutions and their partners to understand climate risk in their portfolios. It is intended as a capacity building tool for Chinese financial institutions to enable them to effectively identify which methodologies are most relevant to them. 

By internalising climate transition risks, financial institutions can future-proof their investments and shift them away from high risk assets to those less likely to be disrupted or stranded by climate change. This will encourage more focus on investments with low climate risk, which will inherently be ones that either directly or indirectly support the transition away from fossil fuels. The report focuses on China’s banks, which dominate the country’s financial market, providing three-fifths of total credit to the private sector.