US Banks and Climate Change – What’s the Exposure to Climate Risk?

by Hank Boerner – Chair & Chief Strategist  – G&A Institute
October 27 2020
Banks have long been at the center of the U.S. economy, and federal policies (federal legislation, rules) for the last century have been designed to support, encourage and protect banking institutions, and the customers the banks serve.
The Federal Reserve System – America’s vital central bankers – was one of the last central banks of the industrial nations to be organized (through the 1913 Federal Reserve Act). The Fed plays a critical role in U.S. bank oversight and support.
There is also a robust state-level banking oversight and protection system. Take New York State  — for many years, the state’s bank licensure activities were second only to the Federal governments. Many foreign banks “land” in NY and obtain a state license to begin to operate.
In all this oversight and protection [of the banking system], in all the laws, rules and regulations for the U.S. banking sector, risk is regularly addressed. It is central to bank regulation and the foundation of rules etc.
The questions centered on risk become more critical in this, an era of fast-rising climate change challenges.
What is the broad scope the financial services sectors’ (and the banking industry’s) responsibilities and accountabilities as seas rise, super storms roar ashore, flood waters rise, enormous wildfires occur, and more?
The Ceres organization’s “Ceres Accelerator for Sustainable Capital Markets” looked at the U.S. banking sector’s exposure to climate risk – to ask and try to answer: what are the systemic and financial risks of climate change for stakeholders, for the banking industry, and the broader economy?  That’s our Top Story pick for you this week.
The researchers looked at the risk associated with the syndicated lending of major U.S. banks in climate-relevant sectors of the economy. Key quote: “Our future depends on banks’ understanding of, and disclosure of, their exposure to major risks like climate change” (Steven Rothstein, MD of the accelerator).
The good news is that a growing number of the major U.S. banks have announced moves to look more closely at climate change impacts. Bank of America, for example, joined other big banks in disclosing the “E” effect of its lending practices. The big banks (like Citi Group) have joined forces in the Partnership for Carbon Accounting Financials Initiative.
Some 70 banks and investors from five continents are involved (with US$9 trillion in AUM). Lots going on in banking circles related to climate change challenges these days!
TOP STORIES
The Ceres Accelerator for Sustainable Capital Markets report on banking:

• First-of-its-Kind Report Finds U.S. Banking Sector Far More Exposed to Climate Risk Than Previously Understood by Stakeholders, Disclosed by Banks (Source: Ceres)

Something we were pleased to be a part of — WSJ Feature Section on “Leadership and Sustainability”. Journalists Dieter Holger and Fabiana Negrin Ocha interviewed the G&A leadership team in the “Show Us The Numbers” feature:

• Companies Grapple with Sustainability Data (Source: WSJ)