11/02/2026
Insights Blog

On 27 January 2026, the Central Bank of Ireland (CBI) published its Climate Observatory for 2025. The CBI’s Climate Observatory provides annual, evidence-based updates on climate science trends, progress on decarbonisation, and evolving financial risks. It aims to provide stakeholders with metrics to understand and manage climate-related risks.

Climate change and the CBI’s mandate

The CBI notes that climate change is an escalating global risk, and has a direct impact on the financial system. The report highlights the impact of climate change upon the CBI’s mandates in the following ways:

  • Financial stability: Physical and transition risks can raise credit, market and liquidity risks across banks, insurers and funds, increasing systemic risk and the potential for abrupt repricing or contagion.
  • Prudential supervision: Climate-related credit losses, increased insurance claims, collateral impairments, and impacts on investments can all affect the sustainability of financial market participants’ business models. Firms are required to embed these risks in their risk-management and governance frameworks and to integrate climate scenarios into stress tests.
  • Macroprudential policy: Regional concentration of physical risk or sectoral exposures (e.g. agriculture, real estate, energy) may call for targeted macroprudential tools or guidance to limit system-wide vulnerabilities.
  • Insurance availability: Climate-related losses impact on insurance availability and pricing, affecting the resilience of households and businesses.
  • Consumer Protection: Greenwashing risks need to be assessed in the context of sustainable financial products targeted at consumers.
  • Price stability: Increased frequency and severity of weather events and the cost of transition policies can add inflationary volatility, complicating forecasting and monetary-policy transmission.
  • Market functioning and payments: Climate events can disrupt markets, liquidity and payment/settlement systems.
  • Data, research and international cooperation: Effective fulfilment of mandates requires better climate data, models and cross-border coordination on scenarios, disclosure and regulatory standards.

The report notes that the economic and financial costs of climate change are already emerging. A quarter of all weather and climate‑related economic losses in Europe since 1980 occurred in the past four years alone.

The report also highlights that climate models indicate that deep global decarbonisation could substantially reduce long-term damage, and an early and orderly transition would minimise total economic costs over the course of this century. Substantial investment from the public and private sector in renewable energy and other adaption measures is required in order to achieve this goal.

Climate exposures within the Irish financial system

The report takes stock of Ireland’s progress in a number of areas, and presents several findings of particular significance for Ireland’s financial services sector:

  • Lending:
    • By mid-2025, approx. 44% of new mortgage originations were “green” mortgages (mortgages with discounted rates for energy-efficient homes).
    • At end-2024, banks had sizable loans to non-financial companies (NFCs) operating in climate policy relevant sectors (CPRS) (about 44% of total lending). CPRS are sectors where revenues can be affected positively or negatively in a disorderly low-carbon transition, based on their energy technology.
    • In 2024, the carbon intensity of Irish banks’ loans to NFCs was more than twice the euro area average. This divergence has widened since 2018, implying that bank domestic lending portfolios face comparatively greater transition risk.
    • As of mid-2025, around 6% of domestic NFC loans were exposed to flood risk (based on a 1-in-100-year event) and this share is projected to rise without adaptation.
  • Investment funds / insurers / pension schemes:
    • As of Q3 2025, over one-tenth of insurance sector investments (over €14 billion) were exposed to CPRS.
    • Since 2018, the carbon intensity of investments held by funds, insurers and pension schemes has fallen, in line with the euro area averages.
    • Green bond holdings by Irish resident investors are increasing, but at a slower rate.
    • The insurance sector carries substantial natural catastrophe charges, though 82% relate to non‑domestic perils. Windstorm exposure is the largest single domestic peril, reflecting Ireland’s physical risk profile.
    • The growth of assets under management (AUM) across investment funds and money market funds is tracked by Sustainable Finance Disclosures Regulation (SFDR) classification, with Article 9 (sustainable objective) products representing <1% of total AUM, Article 8 (environmental/social‑promoting) products accounting for 34.2%, and Article 6 (non‑sustainability‑focused) products comprising 65.2%.

The report is a timely reminder of the impact of climate change on the Irish financial system, including as a structural risk driver that shapes underwriting considerations, investment policies and portfolio composition, asset valuations, and credit risk and exposure.

To discuss any ESG-related matters further, please get in touch with your usual Arthur Cox contact, or a member of our multi-disciplinary ESG Group.

For more on the proposed revisions to the SFDR classification system mentioned above, please see our recent update here.