The document discusses the impact of climate change on financial institutions, highlighting the need for banks to address climate risks amidst increasing regulatory scrutiny and changing market dynamics. It emphasizes the importance of evaluating exposure to climate-related risks and adapting lending practices to align with emerging regulations and consumer preferences. The text also covers the reputational risks associated with fossil fuel financing and encourages a balanced risk appetite to seize opportunities in projects responding to climate change.

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HOW WILL CLIMATE CHANGE
AFFECT YOUR FINANCIAL
INSTITUTION?
From The RMA Journal

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WHAT IS YOUR
FINANCIAL INSTITUTION
DOING ABOUT CLIMATE
CHANGE?
Given the advancing global
effort to face what is very likely
the defining issue of the century,
expect to hear that question
more and more.

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WHAT IS YOUR FINANCIAL INSTITUTION
DOING ABOUT CLIMATE CHANGE? (CONT.)
No matter what you believe to be true about climate
science, the reality is that your bank must address it.

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Rising
sea levels
In climate-change
discussions
physical risks
include:
More extreme
weather
PHYSICAL RISKS

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TRANSITION RISKS
Entire industries, as
nations try to cut back
dramatically on CO2
emissions by:
• Switching to electric
cars.
• Encouraging solar
power generation.
• And reducing air travel
and beef consumption.
The impact on
regulations.
Consumer
preferences.
Transition risks include:

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THESE RISKS RAISE SEVERAL QUESTIONS
Could an event or
breakthrough cause a
precipitous drop in the
value of one of your
borrower companies
tied to the oil or
automotive industry?
Have you stress tested
your portfolio to
determine how it would
withstand such a
shock?
And what if your bank
were required to report
on its exposure to
climate-related risk?

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CLIMATE CHANGE-RELATED REGULATIONS
Regulators in
Australia, France,
the Netherlands,
and the United
Kingdom
are all considering
climate-change-
related regulations
for banks.

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Meanwhile, the Task Force on
Climate-Related Financial
Disclosures of the Financial
Stability Board is recommending
that companies make their
climate-related risks known to
lenders and other stakeholders.
CLIMATE CHANGE-RELATED DISCLOSURES

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REPUTATION: FOSSIL FUEL PROJECTS
There is also
your bank’s
reputation
to consider.
To wit:
Each year, the “Banking on Climate Change: Fossil Fuel
Finance Report Card,” released by Bank Track, the
Rainforest Action Network, the Sierra Club, and Oil
Change International, ranks banks by their relationships
with fossil fuel projects.
Source: “Banking on Climate Change: Fossil Fuel Finance Report Card 2019.”

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RISK APPETITE
As with all risks, the
idea is not to avoid
them at all costs, but
to have a considered
and reasonable risk
appetite for your
organization—and to
optimize the
opportunities.

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RISK APPETITE (CONT.)
Just as there are risks and
opportunities with lending to
traditional energy providers,
there are risks and opportunities
in lending to projects that are a
reaction to climate change.

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You need to be doing something about the
potential impacts of climate change.
THE POINT

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LEARN MORE
The RMA Journal is the award-winning magazine published
by The Risk Management Association:
• It is the only professional journal written by risk practitioners for risk
practitioners.
• Each article is peer reviewed by our Editorial Advisory Board prior to
publication.
• Published 10 times a year, The RMA Journal offers practical advice
on managing risk across the enterprise.
Learn more at:
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Visit https://www.rmahq.org/membership-types/

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SHARE THIS PRESENTATION
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