Climate change represents one of the greatest challenges for regional banks. The integration of climate risks into credit risk management is essential in order to adequately counter the increasing risks.
The five-pillar framework presented by Eric Frère, Inga-Maria Klaes and Alexander Röser offers a holistic approach to considering climate risks in credit risk management. The five pillars include alignment with sustainability goals, more precise risk assessment, portfolio stabilization, financing the transition and decarbonization of the credit portfolio.
In their article, the authors show that regional banks need to improve their risk assessment methods in order to better address the individual climate-related risks of individual companies. The integration of climate risks into credit assessment must be stepped up in order to avoid misjudgements and improve the resilience of loan portfolios. Through the targeted financing of transition projects, regional banks can not only make their loan portfolios more sustainable, but also position themselves as leading providers of sustainable financing.
You can download the entire article here (in German).