The report said a political framework for action on climate stability is essential, but said the Kyoto Protocol, under which many industrial nations except the United States committed to curb greenhouse gas emissions by 2012 does not go far enough.

Written on behalf of the UN Environment Programme's (UNEP) finance initiative, the report said financial institutions could deliver market solutions to climate change, through carbon emissions trading and lower insurance premiums for cleaner companies.

"A pro-active stance by financial institutions will help to reduce the threats they face from climate change while also providing opportunities," the report said.

Worldwide economic losses from natural disasters appear to be doubling every ten years, the report said, and called for action to decrease the emission of greenhouse gases, particularly carbon.

LITTLE COMMITMENT

Although they are directly at risk, the reaction of financial services firms to the problem of climate change has so far been patchy, the report said, while governments have shown little commitment to tackling the problem.

The report said that while climate change is widely recognised as being a threat by insurers and reinsurers, their strategies towards it have been mixed.

Very few insurers, for example, factor in climate change-related risks into their insurance premiums, the report said.

In the commercial banking industry it said there appeared to be little awareness of the issue among senior executives, though some companies have seized the opportunity to take the lead in greenhouse gas credit trading and energy efficient loans.

Fund managers do not currently regard climate change as an investment risk, though socially-responsible fund managers consider climate change when choosing their investments. But the criteria used tend to be very crude, the report said.

The report called on financial services companies to raise awareness of the problem of climate change and to lead by example in corporate environmental management. They should also provide products and services that support adaptation and mitigation of climate change.

It said governments should commit to emissions reductions measures that put a price on carbon and stimulate demand for products in the emissions trading market.