A methodological framework and tool for assessing the climate change related risks in the banking sector

Georgopoulou, E.; Mirasgedis, S.; Sarafidis, Y.; Hontou, V.; Gakis, N.; Lalas, D. P.; Xenoyianni, Foteini; Kakavoulis, Nikos; Dimopoulos, Dimitris; Zavras, Vrassidas

doi:10.1080/09640568.2014.899489

Cited by 19 publications

(19 citation statements)

References 32 publications

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“…In this paper, we have undertaken a bottom‐up review of the most likely material natural capital risks for a single sector and geography—Australian beef cattle production—thus demonstrating that a context‐specific natural capital credit risk assessment approach is feasible. This adds to a small but growing literature providing evidence to support such risk assessments for different agricultural sectors and geographies (Cojoianu & Ascui, ; Georgopoulou et al, ; Zeidan et al, ).…”

Section: Discussionmentioning

confidence: 62%

“…There are also very few examples in the academic literature of systematic methods for assessing natural capital credit risks in agriculture, whether for lending or investment purposes. Georgopoulou et al () point to the almost complete absence of methods for the assessment of just one important environmental risk factor—climate change, which can be framed as a natural capital risk arising from agriculture's dependency upon current climatic conditions—in bank lending. Dominati et al () note that the natural capital and ecosystem services provided by soils remain poorly understood, despite their critical importance.…”

Section: Environmental Credit Risk Assessmentmentioning

confidence: 99%

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Implementing natural capital credit risk assessment in agricultural lending

Ascui

Cojoianu

2019

Bus Strat Env

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Agriculture has critical impacts and dependencies on natural capital, and agricultural lenders are therefore exposed to natural capital credit risk through their loans to farmers. Currently, however, lenders lack any detailed guidance for assessing natural capital credit risk in agriculture and are challenged by the fact that the relevant material risks vary considerably by agricultural sector and geography. This paper develops a natural capital credit risk assessment framework based on a bottom-up review of the material risks associated with natural capital impacts and dependencies for Australian beef production. It demonstrates that implementing natural capital credit risk assessment is feasible in agricultural lending, using a combination of quantitative and qualitative inputs. Implementation challenges include the complexity and interconnectedness of natural capital processes, data availability and cost, spatial data analytical capacity, and the need for transformational change, both within lending organisations and across the banking sector.

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Section: Discussionmentioning

confidence: 62%

Section: Environmental Credit Risk Assessmentmentioning

confidence: 99%

Implementing natural capital credit risk assessment in agricultural lending

Ascui

Cojoianu

2019

Bus Strat Env

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“…Testing U.S. equity portfolios, the study finds negative elasticity to temperature shifts and thus argues that the social cost of carbon represents present negative impacts on economic growth and equity valuations. Georgopoulou et al (2015) propose a methodological framework as well as a tool called "CLIMA-RISK" to quantitatively assess climate risks, and test their tool for a Greek bank. Interestingly, as it might potentially affect banks, D'Orazio and Popoyan (2019) address prudential approaches and regulation to incentivize banks in decarbonization including policies that reduce risks resulting from climate change and other environmental hazards.…”

Section: Assessment Approachesmentioning

confidence: 99%

“…Georgopoulou et al . (2015) propose a methodological framework as well as a tool called “CLIMA‐RISK” to quantitatively assess climate risks, and test their tool for a Greek bank. Interestingly, as it might potentially affect banks, D'Orazio and Popoyan (2019) address prudential approaches and regulation to incentivize banks in decarbonization including policies that reduce risks resulting from climate change and other environmental hazards.…”

Section: Research In Environmental Risk and Current Approaches To Envmentioning

confidence: 99%

Environmental Hazards and Risk Management in the Financial Sector: A Systematic Literature Review

Breitenstein

Nguyen

Walther

2021

Journal of Economic Surveys

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We conduct a systematic literature review on environmental and climate-related risk management in the financial sector. We classify the current literature into three categories: (i) the impact of environmental concerns on financial risk; (ii) the current state of environmental risk practices in the financial sector; and (iii) measures to assess the financial exposure to environmental risks. We find that financial institutions can reduce their risk exposure by highly committing with environmental responsibility and performance. Moreover, the increase in willingness to assess climate-related financial risk incentivizes corporate managers to adopt more proactive environmental policies and practices.

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“…A search across all academic databases subscribed to by the University of Oxford using the keywords 'environmental', 'credit', 'risk' and 'agriculture' yielded only 80 results, only a few of which were found to be relevant. For example, Georgopoulou et al (2015) develop a framework to assess the risk of climate change to lending across several Greek industries, including wheat farming, using the loan portfolio of a Greek bank as a case study. The authors use climate and agronomic modelling to make the case for materiality of climate change to the agriculture sector, and conclude that the physical risks from climate change to Greek crop farms are between 7.4-12.4% of their annual turnover.…”

Section: Environmental Credit Risk Assessmentmentioning

confidence: 99%

Developing an evidence base for assessing natural capital risks and dependencies in lending to Australian wheat farms

Cojoianu

Ascui

2017

Journal of Sustainable Finance & Investment

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Farmers are highly dependent on stocks of natural capital, and lenders are in turn exposed to natural capital through their loans to farmers. However, the traditional process for assessing a farmer's credit risk relies primarily on historical financial data. Banks' consideration of environmental factors tends to be limited to major risks such as contaminated land liabilities, and to large project and corporate finance, as opposed to the smaller loans typical of the Australian agricultural sector. The relevant risks and dependencies for agriculture vary by sub-sector and geography, and there is a lack of standardized methodologies and evidence to support risk assessment. We provide an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture-wheat farming. We show that such an assessment is possible, with a combination of quantitative and qualitative inputs, but the complexity and interconnectedness of natural capital processes is a challenge, particularly for soil health.

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A methodological framework and tool for assessing the climate change related risks in the banking sector

Cited by 19 publications

References 32 publications

Implementing natural capital credit risk assessment in agricultural lending

Implementing natural capital credit risk assessment in agricultural lending

Environmental Hazards and Risk Management in the Financial Sector: A Systematic Literature Review

Developing an evidence base for assessing natural capital risks and dependencies in lending to Australian wheat farms

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