Growing Climate Risks And Greenwashing Fears Threaten Bank Creditworthiness

KUALA LUMPUR, Sept 13 (Bernama) -- As climate-related risks become a growing concern for financial institutions, banks are increasingly exposed to vulnerabilities across various regions and sectors.

S&P Global Ratings director and lead analyst of Pacific, Sovereign, IPF and Financial Institutions Ratings, Sharad Jain said emerging market banks, especially in oil and gas-dependent countries like Mongolia and Nigeria, face heightened risks from global energy transition policies, with limited capacity to adapt.

“We consider banks in such countries to be at risk of global changes in public policy, including those related to energy transition.

bootstrap slideshow

“Banks and authorities in these countries have relatively limited capacity to adjust to these changes, while banks in the Gulf Cooperation Council (GCC) countries have more flexibility to adjust to these changes, although the transition remains a long-term challenge,” he said.

Moreover, physical risks from natural disasters such as hurricanes, floods, and droughts continue to pose a significant threat to banks in regions like Puerto Rico, Paraguay, and Jamaica, where infrastructure and economic activity are periodically disrupted, said Manish.

He said this during a panel discussion on ‘Climate Risk And Banking: Navigating New Challenges And Unlocking Opportunities’, organised by S&P Global Ratings.

bootstrap slideshow

The session was part of the Asia-Pacific Financial Institutions Virtual Conference 2024 held on Wednesday.

Sharad said concerns over greenwashing are reshaping the landscape for banks' creditworthiness and financial stability.

He said accusations of greenwashing -- when institutions falsely present themselves as environmentally responsible can negatively impact the creditworthiness of financial institutions.

“Such accusations raise questions about a bank's broader governance standards. Greenwashing concerns can also damage a bank's investor, customer, or social franchise, and they can result in financial penalties from regulators or legal actions.

“There are also concerns in the market about whether transition plans and activities aimed at decarbonising over time are credible,” he said.

Moving forward, Sharad said more standardised and comparable disclosures about banks' climate risk exposure are expected, which would improve the accuracy and depth of credit analysis.

“As supervisors and banks provide greater transparency on finance sectors' vulnerability to these risks, it should also improve the quality and quantity of data that we can leverage in our analysis,” he added.

-- BERNAMA