According to a recent climate scenario analysis conducted by the Federal Reserve, American banks are facing significant challenges in accurately assessing the influence of climate change on their loan portfolios. These challenges arise from issues related to data collection and modeling complexities.
The primary objective of the analysis was to evaluate how effectively banks could manage climate-related risks, including natural disasters and evolving policies. The findings indicate that many financial institutions may have to lean on third-party data providers to address informational gaps.
This analysis was undertaken in 2023 and involved major banks such as Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The implications of climate-related financial risks are substantial, potentially amounting to trillions of dollars in asset losses and posing serious threats to the stability of the banking sector.
Federal Reserve Chair Jerome Powell noted that while policy would not dictate specific climate targets, it would be employed to mitigate risks affecting the banking system.
For those interested in advancements within the sustainable finance domain, the upcoming Sustainable Finance Live conference hosted by Finextra is scheduled for October 8, 2024.