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Table 1 Climate-related financial risks on the banking sector

From: Transition towards green banking: role of financial regulators and financial institutions

RisksCreditMarketOperational
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