CERES Cites $250 Billion Annual Physical Climate Risk to Banks
September 13, 2021
In a report released on September 8, with a Foreword by Senator Brian Schatz (D-HI), Ceres Company Network (Ceres) stated that the physical effects of climate change could pose an annual $250 billion risk to the largest U.S. banks. In its analysis, which was limited to $2.2 trillion of exposure for syndicated loans, Ceres determined that the annual value-at-risk from physical climate impacts on U.S. bank portfolios could approach 10%, even if adaptation measures are taken. According to Ceres’s analysis, about two-thirds of this risk comes from indirect economic impacts like supply chain disruptions and lower productivity, with coastal flooding representing the largest source of direct risk.
The report also noted that while insurance can mitigate some direct risk, banks will still be affected via higher cost of insurance for clients, lower property values, and an increasing number of uninsured assets leading to more non-performing loans.
Ceres stated that while financial regulators are ramping up efforts related to climate risk, the banking sector also must pro-actively measure physical climate risk, integrate this risk into product and service pricing, and capitalize on important opportunities.