Snapshot: Banks and Climate Change from a Credit Perspective

DBRS Morningstar has published a new commentary that briefly highlights how DBRS Morningstar looks at banks’ management of climate-related risks, in particular, from a credit perspective.

• Large banks are typically balancing a number of different objectives to assess climate-related risks and opportunities. They generally continue to support clients that are seen to have sufficient plans to transition to Net Zero emissions.

• In terms of banks’ credit ratings, we are assessing overall climate-related risks, and how banks are incorporating this evolving risk into their risk management framework. For example, whether banks are developing stress testing tools is an indication of their appetite to adjust as appropriate, and this can be more challenging for smaller and medium sized banks.

• Monitoring climate-related risks is a quickly evolving field of expertise. Any progress communicated by the banking regulators is important. First rounds of climate-related stress-tests were presented as learning exercises, and there were no implications in our credit assessments.

“As a credit rating agency our core focus is on assessing the credit risk,” said Vitaline Yeterian, Senior Vice President, European Financial Institutions at DBRS Morningstar. “To date, the impact of climate-related risk factors on banks’ credit ratings has been marginal for banks we rate. However, looking ahead, climate-related risks are likely to remain a priority for banks given regulatory pressures.”