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Banks can prepare for CC

Banks can prepare for CC 22 September 2020

Climate Change Will Restructure the Economy. Here’s How Banks Can Prepare (via Brink News)

By John Colas, Ilya Khaykin & Alban Pyanet

As scientists deliver ever–more–serious warnings about climate change, companies are beginning to size up the potential effects not only on their businesses and industries but across the entire global economy. 

Banks wouldn’t seem to be on the frontlines of these emerging risks. But because they make loans and grease the wheels of commerce for clients in virtually every industry, all over the world, their exposure to climate change is potentially enormous.  

Measuring the potential effects of climate change on banks is no simple task. But opportunities are beginning to emerge from the shift to a lower–carbon economy, and if banks measure and manage their growing climate risks, they will be in a better position to seize these opportunities. 

Pressure Is Mounting

The stakes of climate change are high for many industries: Physical risks are beginning to materialize, regulatory pressures are increasing, new opportunities are emerging — and investors are demanding more transparency. The first step is understanding what, exactly, is at risk. 

For banks, one of the biggest threats is credit risk, or the risk that borrowers will default. In home mortgage lending, for example, a bank’s loan portfolio can be impacted by climate risk in two ways — either through persistent, chronic changes in the environment, such as rising seas, or through specific acute events, such as more intense storms, flooding and mudslides. Expectations of an increase in such events can hurt property values and, ultimately, increase the risk of defaults. 

Read the full story here…