Financing a Net Zero Economy: The Consequences of Physical Climate Risk for Banks

Financing a Net Zero Economy
The Consequences of Physical Climate Risk for Banks

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Financing a Net Zero Economy: The Consequences of Physical Climate Risk for Banks provides valuable insights to help the sector realize the systemic implications of physical risk and sets out a practical roadmap to help banks conduct risk assessments and incorporate climate risks into their day-to-day decision-making. As the lynchpin of the global economy, financial institutions have an essential role to play in minimizing the worst impacts of climate change. How banks respond to the climate risk that they individually and collectively face is critical.

Financing a Net Zero Economy: The Consequences of Physical Climate Risk for Banks analyzed $2.2 trillion of exposure for syndicated loans and found the physical risk to major U.S. banks could amount to more than $250 billion annually. The highly informative report also noted two-thirds of banks' physical risk comes from the indirect economic impacts of climate change, such as supply chain disruptions and lower productivity, with coastal flooding (driven by sea-level rise and stronger storms such as Hurrican Ida, which just devastated New Orleans' power grid and left more than 1 million residents without power) representing the largest source of direct risk.

"While the industry has taken steps to mitigate climate change risks, the enormity of these threats means banks and bank regulators still have much work to do,” said Dan Saccardi, senior director of the Ceres Company Network at Ceres. “The sector must stop treating the climate crisis as a reputational risk with minimal financial implications and instead reconsider how today’s financing activities, risk management, and strategic planning can help banks minimize economic instability and disruption in the long-term – for themselves, the economy, and broader society.”

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