Climate, Risk, and Governance: Why the Real Debate Is About Leadership, Not Responsibility

In a new article, Yair Avidan, Chair of the Advisory Committee of the Arison Center for ESG at Reichman University and former Supervisor of Banks, examines the evolving responsibilities of financial institutions in addressing climate change. Drawing on a recent report by Columbia University's Center on Sustainable Investment, he highlights the distinction between planetary, economic, and financial climate risks. While banks and financial regulators must manage climate-related financial risks, their role should not be confused with that of governments in setting and implementing climate policy.

Avidan argues, however, that the financial sector's influence extends beyond risk management. Institutional investors, particularly pension funds with long investment horizons, can shape economic development through capital allocation, corporate engagement, and investment decisions. Addressing material climate risks is therefore not necessarily at odds with fiduciary duty but may be essential to protecting long-term returns. At the same time, he cautions against confusing ESG commitments, reporting, and portfolio alignment with measurable environmental impact.

Ultimately, Avidan argues that managing climate risks is necessary but insufficient. The central challenge is leadership: governments must establish clear long-term policies and incentives while enabling regulators, banks, institutional investors, and businesses to work together. Effective climate action requires not only clearly defined institutional responsibilities but also coordination, long-term thinking, and the ability to translate financial decisions into meaningful economic and environmental outcomes.

To read the full article, visit our website in Hebrew.