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Climate risk in banking

Understanding climate change’s material impacts will help banks strengthen their resilience and drive strategic growth. Connecting data on physical and transition risks with planning and decision-making tools is key to unlocking new opportunities while managing downside.

Moody’s extensive and trusted climate risk data and analytics, industry-leading expertise, and best practices help banks prepare and respond to constantly evolving regulations, as well as customer and shareholder demands across all asset types.

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How we help

We offer workflow solutions, data, and analytics that provide a comprehensive view of physical and transition risks.

Our capabilities integrate climate risk analytics into credit models across banking workflows, allowing customers to seamlessly incorporate climate risk into their existing processes for lending, portfolio risk management, stress testing, regulatory reporting, and investment decisions. Customers can access our analytics through standalone physical risk, credit, and economic models, or via our integrated banking workflow platforms.

Solutions

01 Risk
Risk

Risks are increasingly complex, interconnected, and hard to predict. We integrate climate risk data and analytics into the credit portfolio management workflow to provide comprehensive insight, a broad perspective for benchmarking, and a connection to the financial implications of these risks on future performance. Our extensive climate risk intelligence helps banks understand potential risks to their portfolios, meet emerging regulatory requirements, and capitalize on opportunities.


Moody’s climate scenario analysis and stress testing solution leverages our combined expertise in credit risk and climate risk to help banks analyze, act, and communicate on climate risks and opportunities within their credit portfolios. Our comprehensive approach leverages advanced modeling, real-world data — both transition and physical — and extensive coverage of key asset classes including commercial and industrial as well as commercial real estate, allowing risk and portfolio managers to:

 

  • Obtain a full understanding of climate risks and opportunities:
    • Identify climate concentrations and credit exposures.
    • Assess physical and transition risks.
    • Apply climate science across all asset classes.
       
  • Compare current conditions against future scenarios to guide portfolio planning:
    • Apply climate scenario analysis.
    • Conduct climate scenario analysis and stress testing exercises.
    • Monitor portfolio performance in real time.
    • Leverage what-if analysis for strategic planning.
       
  • Present historical trends and future direction:
    • Comply with regulations and report on risk.

 

By integrating forward-looking climate metrics into risk management frameworks, banks can enhance their portfolio planning and stress testing capabilities, ensuring they are well-prepared to navigate climate risk’s complexities.

Download capabilities brochure
02 Lending
Lending

Climate risk requires additional perspectives in the lending process to address key challenges around policy and scenario uncertainty as well as a lack of counterparty data, which can complicate lending workflow activities. Climate scenario analysis offers a framework to overcome challenges in screening, deal structuring, pricing, and covenant definition and monitoring. The analysis results offer insight on possible economic changes in industries and counterparties associated with climate change.

We incorporate climate risk data and considerations into our industry-leading credit models, economic research, and forecasts for a consistent, quantitative assessment of credit risk. You can enhance credit assessments with climate risk that is integrated into financial analysis tools, contributing to more informed decision-making.

We help you navigate the additional element of climate risk within constantly fluctuating financial markets, leveraging our early-warning and monitoring solutions for enhanced operational efficiency, reduced costs, and competitive positioning.  Understand climate risk’s lending implications in your portfolio analysis and stress testing with insights on physical and transition risks to property, market, and submarket metrics that guide your investment strategies.

03 Finance and risk disclosures
Finance and risk disclosures

In today’s financial sector, the ability to navigate climate risk is paramount. Investors and regulators demand transparency in how banks anticipate and mitigate climate change’s financial impacts. Our integrated finance solutions help banks’ finance departments incorporate advanced scenario analysis and stress testing, including climate risk, into their financial planning. This approach can help meet enhanced disclosure requirements and strengthen strategic resilience while maintaining compliance with evolving climate regulations. By refining key goals and securing necessary capital allocations, banks can safeguard their financial performance against climate-related uncertainties, making them more adaptable and forward-thinking in a rapidly changing world.

Moody’s helps risk managers with their portfolio compliance guidelines and net-zero targets as well as identifying adaptation and resilience opportunities, including those specific to the material physical risks identified through our modeling tools.

Climate change regulation and disclosure requirements are rapidly evolving and region-specific. For example, in Europe, executed European Union (EU) banking regulations and European Central Bank (ECB) expectations are creating new challenges and opportunities specific to lending and risk management. In the US, while the policy landscape is less mature, preliminary exercises such as the Federal Reserve Board’s climate risk exposure stress testing set the stage for future regulatory mandates. Under these increasing worldwide regulatory and market pressures, forward-thinking financial institutions aim to consistently incorporate climate risk into their workflows.

04 Learning solutions
Learning solutions

Climate’s impact on banks has caused a seismic shift in how banks confront challenges and opportunities. Banks today have one key differentiator that can give them a competitive edge: their people. Moody's Learning Solutions Climate Change Fundamentals can help your organization attract, develop, and sustain your next generation of business leaders and help them confidently tackle the modern challenges, risks, and opportunities that climate change presents.

Climate change and sustainable finance build understanding of climate risk issues and frameworks, with an emphasis on how to engage stakeholders and businesses on the risks and opportunities climate change presents, helping banks support their clients as they adopt sustainable business practices.

Risk

Risks are increasingly complex, interconnected, and hard to predict. We integrate climate risk data and analytics into the credit portfolio management workflow to provide comprehensive insight, a broad perspective for benchmarking, and a connection to the financial implications of these risks on future performance. Our extensive climate risk intelligence helps banks understand potential risks to their portfolios, meet emerging regulatory requirements, and capitalize on opportunities.


Moody’s climate scenario analysis and stress testing solution leverages our combined expertise in credit risk and climate risk to help banks analyze, act, and communicate on climate risks and opportunities within their credit portfolios. Our comprehensive approach leverages advanced modeling, real-world data — both transition and physical — and extensive coverage of key asset classes including commercial and industrial as well as commercial real estate, allowing risk and portfolio managers to:

 

  • Obtain a full understanding of climate risks and opportunities:
    • Identify climate concentrations and credit exposures.
    • Assess physical and transition risks.
    • Apply climate science across all asset classes.
       
  • Compare current conditions against future scenarios to guide portfolio planning:
    • Apply climate scenario analysis.
    • Conduct climate scenario analysis and stress testing exercises.
    • Monitor portfolio performance in real time.
    • Leverage what-if analysis for strategic planning.
       
  • Present historical trends and future direction:
    • Comply with regulations and report on risk.

 

By integrating forward-looking climate metrics into risk management frameworks, banks can enhance their portfolio planning and stress testing capabilities, ensuring they are well-prepared to navigate climate risk’s complexities.

Download capabilities brochure
Lending

Climate risk requires additional perspectives in the lending process to address key challenges around policy and scenario uncertainty as well as a lack of counterparty data, which can complicate lending workflow activities. Climate scenario analysis offers a framework to overcome challenges in screening, deal structuring, pricing, and covenant definition and monitoring. The analysis results offer insight on possible economic changes in industries and counterparties associated with climate change.

We incorporate climate risk data and considerations into our industry-leading credit models, economic research, and forecasts for a consistent, quantitative assessment of credit risk. You can enhance credit assessments with climate risk that is integrated into financial analysis tools, contributing to more informed decision-making.

We help you navigate the additional element of climate risk within constantly fluctuating financial markets, leveraging our early-warning and monitoring solutions for enhanced operational efficiency, reduced costs, and competitive positioning.  Understand climate risk’s lending implications in your portfolio analysis and stress testing with insights on physical and transition risks to property, market, and submarket metrics that guide your investment strategies.

Finance and risk disclosures

In today’s financial sector, the ability to navigate climate risk is paramount. Investors and regulators demand transparency in how banks anticipate and mitigate climate change’s financial impacts. Our integrated finance solutions help banks’ finance departments incorporate advanced scenario analysis and stress testing, including climate risk, into their financial planning. This approach can help meet enhanced disclosure requirements and strengthen strategic resilience while maintaining compliance with evolving climate regulations. By refining key goals and securing necessary capital allocations, banks can safeguard their financial performance against climate-related uncertainties, making them more adaptable and forward-thinking in a rapidly changing world.

Moody’s helps risk managers with their portfolio compliance guidelines and net-zero targets as well as identifying adaptation and resilience opportunities, including those specific to the material physical risks identified through our modeling tools.

Climate change regulation and disclosure requirements are rapidly evolving and region-specific. For example, in Europe, executed European Union (EU) banking regulations and European Central Bank (ECB) expectations are creating new challenges and opportunities specific to lending and risk management. In the US, while the policy landscape is less mature, preliminary exercises such as the Federal Reserve Board’s climate risk exposure stress testing set the stage for future regulatory mandates. Under these increasing worldwide regulatory and market pressures, forward-thinking financial institutions aim to consistently incorporate climate risk into their workflows.

Learning solutions

Climate’s impact on banks has caused a seismic shift in how banks confront challenges and opportunities. Banks today have one key differentiator that can give them a competitive edge: their people. Moody's Learning Solutions Climate Change Fundamentals can help your organization attract, develop, and sustain your next generation of business leaders and help them confidently tackle the modern challenges, risks, and opportunities that climate change presents.

Climate change and sustainable finance build understanding of climate risk issues and frameworks, with an emphasis on how to engage stakeholders and businesses on the risks and opportunities climate change presents, helping banks support their clients as they adopt sustainable business practices.

Watch on-demand

Replay our latest webinars

webinar
Real-time analytics on climate events for banks Insights from Hurricane Milton and its impact on CRE

Watch as we explore how we model major climate events, with a special focus on Hurricane Milton. Our experts will reveal impacts on commercial real estate exposures and show how proactive risk management can climate-proof credit portfolios.

Watch now
webinar
The financial costs and impacts of climate change

Join Moody’s for a virtual roundtable discussion to explore how modeling the physical risks to your real asset portfolio can help your teams evaluate potential costs from damages and business disruptions, plus the implications of changing perceptions on insurability due to climate change.

Watch now
webinar
Explore EU banking regulations and ECB expectations

EU banking regulations and ECB expectations on climate risk are creating new challenges and opportunities in lending.  Access an overview of the most recent regulations and guidance, and listen to a discussion on how climate risk data and modeling offer new insights into regulatory-driven risks and opportunities specific to European banking.

Watch now
webinar
Climate-proofing your credit portfolio – Why it matters and how to approach It

Join us for an insightful session on incorporating climate considerations into credit portfolio management. This webinar offers a practitioner’s perspective, with useful takeaways for managing climate risks in your credit portfolio.

Watch now

News and views

whitepaper

Oct 11, 2024
Climate risk impacts on a lending portfolio; loan-level analytics

The ongoing discussion and analysis of climate risk and financial system stability has included a number of climate risk trials, case studies, and experimental stress tests.

Read more
article

Oct 08, 2024

 Moody's
About 235,000 commercial properties in path of hurricane

As of Oct. 7, Hurricane Milton is forecast to pass over the Tampa Bay area and continue across Central Florida toward the Atlantic Ocean.

Read more
research

Sep 25, 2024

 Moody's
161,849 commercial properties in direct path of hurricane

Hurricane Helene’s projected track across Florida’s panhandle and the South has potential implications for public safety and business continuity.

  • Climate risk
  • Insurance
Read more
research
Moody's
Banking-global: Enhanced climate change reporting will support risk management

Big global banks’ climate risk disclosures have increased over the past three years, but they still do not report in detail on how climate change might affect their financial performance.

Read more
whitepaper

Sep 24, 2024

 Moody's
Moody's physical climate risk capabilities for regulatory compliance

A quick read client use case has been prepared on a recent win with the Bank of Luxembourg (BIL). This use case builds awareness of our climate capabilities.

  • Climate risk
Read more
whitepaper
Moody's
Unlocking net-zero opportunities in lending

Explore how lenders can benefit from adopting a multi-level approach to counterparty climate risk and opportunity assessment to overcome key challenges and spur net-zero transition.

Read more
article
Moody's
Climate impact on mortgage credit losses — a portfolio example

Mortgage lenders, servicers, and regulators are becoming increasingly aware of the credit risks associated with severe weather events brought on by climate change. Loss models have traditionally considered two main factors of credit risk: the borrower’s profile — credit history, leverage, property, and loan type — and the economic cycle.

Read more
article
Moody's
Lessons learned in climate scenario analysis by the Federal Reserve: a pathway to robust modelling of climate risk in credit portfolios

The Federal Reserve Board’s (FRB’s) pilot climate scenario analysis exercise showed a large range of credit impacts depending on the climate pathway, event and portfolio analysed.

Read more

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Interested in learning more about our offerings? Our solutions specialists are ready to help.