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2024 | OriginalPaper | Chapter

4. Integrating Climate Risk into Commercial Banks Operations

Authors : Elisabetta Gualandri, Paola Bongini, Maurizio Pierigè, Marina Di Janni

Published in: Climate Risk and Financial Intermediaries

Publisher: Springer Nature Switzerland

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Abstract

This chapter deals with climate risks, their impact on commercial bank operations, and the potential products and mechanisms by which these actors can mitigate them. After an initial section on how climate risks are incorporated into classical banking processes, the focus shifts to the following areas related to the “commercial banking” business: Credit process, Finance and Treasury, Wealth and Asset management.

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Footnotes
2
Return Period is a measure typically used in Risk Analysis and it is the probability of at least one event occurring above the designated probability threshold. Conceptually, the Return Period is the average time that passes between two events of a certain intensity.
 
3
“Final study on the development of tools and mechanisms for the integration of ESG factors into the EU banking prudential framework and into banks’ business strategies and investment policies”, European Commission, 27 August 2021 (EC 2021). Pag 86, “For instance, banks have stopped providing certain products (e.g. derivatives related to coal-based trading, physical inventory management transactions in coal and crude oil) or prioritized other types of assets (e.g. mortgage and Buy-To-Let transactions to properties with high-energy efficiency ratings) as part of their strategy. This strategic choice has indirectly resulted in a risk mitigation strategy.”
 
5
PACTA (Paris Agreement Capital Transition Assessment), developed by the 2 Degrees Investing Initiative, which assesses alignment with climate objectives. This tool combines information on exposures to companies held in the portfolio, at the individual exposure level, within a database containing production plans and technologies used by these companies, comparing them with scenarios developed by the International Energy Agency to evaluate alignment with the goals of the Paris Agreement by each intermediary.
 
6
The new regulations in force since mid-2023 within the framework of the Fundamental Review of the Trading Book (FRTB) include a stricter separation of positions between the trading and banking book, the introduction of a new standardized approach for market price risks as well as revised regulations on the use of internal models.
 
Literature
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go back to reference Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449–470. Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449–470.
Metadata
Title
Integrating Climate Risk into Commercial Banks Operations
Authors
Elisabetta Gualandri
Paola Bongini
Maurizio Pierigè
Marina Di Janni
Copyright Year
2024
DOI
https://doi.org/10.1007/978-3-031-54872-7_4