Table 1 Climate-related financial risks on the banking sector

Transition

• Lower valuation of assets and collaterals

• Impaired loan portfolio due to stranded assets

• Higher expected default by carbon-intensive sectors

• Higher energy and commodity prices

• Higher transaction costs due to weakened macroeconomic conditions

• Higher reputational risks by investing in carbon-intensive sectors

Physical

• Higher expected default by climate-vulnerable sectors such as agriculture and tourism

• Lower valuation of properties in coastal areas due to increased risk of coastal erosion and coastal flooding

• Downgrade of credit ratings of borrowers including sovereigns due to extreme weather events

• Relocation of headquarters and data centers

Liability

• Supply chain disruptions can be generated by augmented damages and losses to property and assets

• Increasing costs from insurance premiums

• Higher reputational risks due to breach of fiduciary duty