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The impact of climate change on banks loan portfolios and strategies for effective climate risk management

Author

Listed:
  • Meshel Muzuva

    (MANCOSA (Honoris Universities))

  • Daniel Muzuva

    (Peta Semantics Private Limited)

Abstract

As extreme weather events continue to impact every continent and the world moves towards establishing a lower-carbon economy, the banking industry is expected to incorporate climate risk into their risk management practices. Climate change poses significant risks to bank loan portfolios through increased physical and transition risks. This study systematically analysed the literature to identify effective strategies for managing these risks. Our findings reveal that climate-related events can lead to substantial loan defaults and credit losses. To mitigate these impacts, banks can integrate climate risk into their risk management frameworks, adopt sustainable lending practices, and diversify their portfolios. Some banks have already implemented measures to mitigate climate risk through insurance policies, while others are incorporating sustainability criteria into their lending practices, such as financing green projects. By proactively addressing climate risks, banks can protect their portfolios, enhance financial resilience and contribute to a low-carbon economy. Key Words:Climate Risk; Green Financing; Loan Portfolios

Suggested Citation

  • Meshel Muzuva & Daniel Muzuva, 2024. "The impact of climate change on banks loan portfolios and strategies for effective climate risk management," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(6), pages 148-157, September.
    • Handle: RePEc:rbs:ijbrss:v:13:y:2024:i:6:p:148-157
    DOI: 10.20525/ijrbs.v13i6.3510
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    References listed on IDEAS

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