U.S. Regional Banks Factoring Climate Risks into Credit Decisions, Investment Strategies

The U.S. banking industry, while lagging other developed markets, is continuing to progress in addressing the risks associated with climate change and the transition toward a low-carbon economy. We expect banks’ management of environmental risks to continually evolve as stakeholders increase pressure and regulators introduce more prescriptive requirements. Risks from climate change, both financial and nonfinancial, can affect banks’ profitability, asset quality and solvency. These hazards range from shifts in consumer demand away from carbon-intensive goods and services, to increased physical vulnerability to extreme weather events. Market and liquidity risks can also be amplified by the repricing of financial assets, for example, in response to climate regulation or other policies. Climate change may also have a direct effect on the reliability of operations for both banks and vendors, while increased compliance requirements and stakeholder scrutiny add to legal and reputational challenges.

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