Cross the same stone twice. That’s the scenario some of Wall Street’s biggest banks could be heading toward by underestimating risk measures related to the impact of climate change.
A climate that is coming because customers in particular and the economy in general are increasingly affected.
The risk data provider, which analyzes financing policies and practices as the sector adapts to the new reality, warns that the consequences of ignoring systemic risks can be profound. Kamil Kluza, Chief Product Officer at Climate Bloomberg that it is precisely “the reason we fell into the 2008 recession” because then “we captured credit, operational and market risks, but we never analyzed liquidity risk in particular.” Today, the blind spot is climate risk.
A priori, the trend is good since around 80% of the banks analyzed collect and study data and consider possible risk scenarios. However, less than half take the step and devote time to acting with customers with higher risk profiles, by offering them suitable products and services or by adjusting their financing.
Banco Santander, among the best rated
The study, carried out in collaboration with Climate Proof, identifies Goldman Sachs, Morgan Stanley and JPMorgan Chase as the banks with the lowest scores in terms of financing investments to adapt to global warming, while the bank with the highest score was Standard Chartered (12 out of 17 possible points), followed by Banco Santander (11 points); The former takes into account, for example, the fact that 90% of its markets are coastal and that the Spanish entity is making progress in integrating this measure into loan allocation decisions based on location and sector.
The progress of climate change is such that the United Nations has already identified adaptation policies as an essential element of the global response. Despite warningsSo far, philanthropists and governments have footed the bill, with a report released last April finding that the private sector contributed just 3% of all climate adaptation finance between 2019 and 2022.
The funds currently allocated represent only “a fraction of what is needed,” World Bank Executive Director Axel van Trotsenburg warned in a speech in June. And much of it is being used to “correct mistakes that should not have been made,” he said.
Climate X acknowledges that the study has limitations in that the results favor institutions that are transparent about their projects or located in regions where Regulators require them to file reportsas is the case of the European Union (EU). Furthermore, it should be noted that the criteria are qualitative (there are no standardised quantitative figures) and may not cover all elements of adaptation finance.
Nevertheless, the study’s authors note that “the analysis underscores the enormous amount of work that banks of all types must undertake if they are to effectively protect their own operations and the economies they serve from climate change.”
