Large banks’ assessment of how climate change might affect their financial performance remains weak, although their climate risk disclosure has improved in the past 18 months, according to Moody’s Investors Service.
Just over a third, 36%, of lenders in the sample, provided even partial disclosure over how their strategies to tackle climate change will affect their lending and investment revenues, up from 32% last year (see graph). The ratings agency analysed 28 US, European and Asian lenders with combined assets of $56 trn.
In addition only one fifth, 21%, even partially disclosed costs associated with managing climate change, while none have disclosed the expected revenue impact of reducing or halting carbon-intensive lending.
In contrast, 43% of banks reported the expected financial impact of climate risk on their own direct business operations, including their buildings and travel expenses, an improvement from 32% a year ago. For example, the report highlighted that UBS Group evaluates the annual tax costs that would apply to its energy use and carbon emissions from its operations if the government of Switzerland’s CO2-levy were increased to its legal maximum value.
Moody’s said: “Banks’ climate disclosure would benefit from more consistent, granular and comparable information, particularly regarding the impact of climate change on lending and investing portfolios. Enforcing climate disclosures from non-financial companies is also essential to improving banking sector disclosure.”
The ratings agency expects more demanding disclosure regulations and further collaboration with peers will help banks improve their climate risk assessment and management. “This will help them improve their overall resilience to climate risk,” said Moodys.
©Markets Media Europe 2021
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