WASHINGTON—Financial regulators around the world are rushing to implement models to measure the financial risk arising from climate change. Central banks including the Federal Reserve may soon begin to implement climate stress tests of banks, which may limit financing for sectors such as mining, oil, and gas. The world’s largest central banks are pondering how to promote green financing. They seek to introduce regulatory frameworks to “mobilize” more money for green and low-carbon investments. Critics, however, argue that the proposals to introduce climate stress tests aim to “defund the fossil fuel industry” and steer funds to “fashionable but unprofitable investments.” Stress testing, developed after the Great Recession, is a process by which central banks determine whether a financial institution has enough capital to weather various economic risks. The European Central Bank (ECB) is one of the pioneers in investigating and deploying concrete plans to address climate risk. The bank is …