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Global climate change: Risk to bank loans

The purpose of this study is to evaluate the impact of climate change related risks on bank borrowers, utilizing as much data and analysis as possible. The first section of this report reviews the current climate change policies in place in Canada, Europe, and the US, in order to provide a framework for policy implementation in the future. The report, prepared by EcoSecurities, then utilizes aggregated loan and lease data from Bank of America, CIBC, Citigroup, Scotiabank, and TD Bank Financial Group, to analyze the impact of climate change related risks on bank loans and leases.

For this report, an assumption is made that emissions caps on six greenhouse gases (Carbon Dioxide (CO2), Methane (CH4), Nitrous Oxide (N2O), Sulfur Hexafluoride (SF6), Perfluorocarbons (PFCs), and Hydrofluorocarbon (HFCs)) will be enacted in the US and Canada. With this assumption, an analysis of the impact of a capped emissions program on bank loan and lease portfolios was conducted. Specifically, the following four areas of risk associated with climate change were analyzed for each of the loan sectors: policy risk, input price increases, output price decreases, and physical exposure. In order to complete this process, loan and lease data from participating banks was compiled. The bank data included total loan and lease portfolio values and average weighted maturities for the eleven sectors that were identified as potential at-risk sectors. The data was aggregated into a climate change “at risk” portfolio to provide an industry-wide study while also protecting individual bank confidentiality.

View the report here: Global climate change: Risk to bank loans