Climate Risk Consideration in Activities of Financial Sector Organizations: Russian Practices and International Experience

Climate change is one of the most important global challenges nowadays. The intensity of its negative effects, characterized by natural hazards, is increasing, which draws increasing attention to the importance of mitigation and adaptation measures. The impact of climate change-related risks is growing in all areas of economic activity, including financial activities. Climate risks of financial organizations are mainly related to the risks of real sector counterparties that are directly vulnerable both to the negative physical effects of climate change and to shifts in the institutional environment, particularly in terms of demand structure adjustments and tightening of climate regulation. Banking activities, similar to other activities of financial industry, have no direct climate impacts, while the indirect impacts associated with corporate lending to polluting organizations can be significant. In this regard, the climate engagement of banks is mainly characterized by the decarbonization of their loan portfolio through cooperation with lendable real sector organizations and refusal to finance carbon-intensive activities. This paper focuses on the impact of climate risks on the activities of major international banks–taking into account the parameters of the presence of carbon-intensive sectors in corporate loan portfolios and the development of the climate agenda in the countries of operation, the overall climate performance of banks is examined and the ambition of financed emissions reduction targets is assessed.