Abstract
This chapter deals with climate risks, their impact on commercial bank operations, and the potential products and mechanisms by which these actors can mitigate them. After an initial section on how climate risks are incorporated into classical banking processes, the focus shifts to the following areas related to the “commercial banking” business: Credit process, Finance and Treasury, Wealth and Asset management.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
- 2.
Return Period is a measure typically used in Risk Analysis and it is the probability of at least one event occurring above the designated probability threshold. Conceptually, the Return Period is the average time that passes between two events of a certain intensity.
- 3.
“Final study on the development of tools and mechanisms for the integration of ESG factors into the EU banking prudential framework and into banks’ business strategies and investment policies”, European Commission, 27 August 2021 (EC 2021). Pag 86, “For instance, banks have stopped providing certain products (e.g. derivatives related to coal-based trading, physical inventory management transactions in coal and crude oil) or prioritized other types of assets (e.g. mortgage and Buy-To-Let transactions to properties with high-energy efficiency ratings) as part of their strategy. This strategic choice has indirectly resulted in a risk mitigation strategy.”
- 4.
- 5.
PACTA (Paris Agreement Capital Transition Assessment), developed by the 2 Degrees Investing Initiative, which assesses alignment with climate objectives. This tool combines information on exposures to companies held in the portfolio, at the individual exposure level, within a database containing production plans and technologies used by these companies, comparing them with scenarios developed by the International Energy Agency to evaluate alignment with the goals of the Paris Agreement by each intermediary.
- 6.
The new regulations in force since mid-2023 within the framework of the Fundamental Review of the Trading Book (FRTB) include a stricter separation of positions between the trading and banking book, the introduction of a new standardized approach for market price risks as well as revised regulations on the use of internal models.
References
Bolton, P., & Kacperczyk, M. (2020) Do investors care about carbon risk? NBER Working Paper series Working Paper 26968. http://www.nber.org/papers/w26968. NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2020.
Brühl, V. (2023). The Green Asset Ratio (GAR): A new key performance indicator for credit institutions. Eurasian Economic Review, 13(1), 57–83.
Deloitte, Report from the Deloitte Center for Financial Services. (2022). Embedding climate risk into banks’ credit risk management: Practical considerations. https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/financial-services/deloitte-cn-fsi-climate-change-credit-risk-management-en-220325.pdf
European Banking Authority (EBA). (2020). Guidelines on loan origination and monitoring. https://www.eba.europa.eu/regulation-and-policy/credit-risk/guidelines-on-loan-origination-and-monitoring
European Banking Authority (EBA). (2022, May). The role of environmental risks in the prudential framework discussion paper. https://www.eba.europa.eu/regulation-and-policy/credit-risk/discussion-paper-role-environmental-risk-prudential-framework
European Central Bank (ECB). (2014, March 11). Guidance to banks on non-performing exposures, and AQR manual. https://www.ecb.europa.eu/press/pr/date/2014/html/pr140311.en.html
European Central Bank (ECB). (2020a, November). Guide on climate-related and environmental risks supervisory expectations relating to risk management and disclosure. https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr201127~5642b6e68d.en.html
European Central Bank (ECB). (2020b, November). “Report on institutions’ climate-related and environmental risk disclosures” ECB Report on institutions’ climate-related and environmental risk disclosures. https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.ecbreportinstitutionsclimaterelatedenvironmentalriskdisclosures202011~e8e2ad20f6.en.pdf
European Commission (EC). (2021, August 27). Final study on the development of tools and mechanisms for the integration of ESG factors into the EU banking prudential framework and into banks’ business strategies and investment policies. https://op.europa.eu/en/publication-detail/-/publication/ce43e64f-06e0-11ec-b5d3-01aa75ed71a1/language-en
Eurosif. (2012). European SRI studies 2012. https://finanzasostenibile.it/attivita/%EF%82%A7european-sri-study-2012/
Eurosif. (2016). European SRI studies 2016. https://www.eurosif.org/news/eurosif-report-2016/
Eurosif. (2018). European SRI studies 2018. https://www.eurosif.org/wp-content/uploads/2021/10/European-SRI-2018-Study.pdf
Frye, J. (2013). Loss given default as a function of the default rate (pp. 1–15). Federal Reserve Bank of Chicago.
Ilhan, E., Sautner, Z., & Vilkov, G. (2021). Carbon tail risk. The Review of Financial Studies, 34(3), 777–799.
Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449–470.
Molino, A., Prosperi L., & Zicchino, L. (2023, July 7). Unveiling the liquidity greenium: Exploring patterns in the liquidity of green versus conventional bonds. Available at SSRN: https://ssrn.com/abstract=4503175 or https://doi.org/10.2139/ssrn.4503175
UN Environment Programme Finance Initiative (UNEP FI), Oliver Wyman, & Mercer. (2018, April). Extending our Horizons. Assessing credit risk and opportunity in a changing climate: Outputs of a working group of 16 banks piloting the TCFD Recommendations. PART 1: Transition-related risks & opportunities. https://www.unepfi.org/wordpress/wp-content/uploads/2018/04/EXTENDING-OUR-HORIZONS.pdf
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2024 AIFIRM
About this chapter
Cite this chapter
Gualandri, E., Bongini, P., Pierigè, M., Di Janni, M. (2024). Integrating Climate Risk into Commercial Banks Operations. In: Climate Risk and Financial Intermediaries . Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-54872-7_4
Download citation
DOI: https://doi.org/10.1007/978-3-031-54872-7_4
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-031-54871-0
Online ISBN: 978-3-031-54872-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)