A Systemic Literature Review of Climate Risk Indicators in Financials of Banks

Abstract

banks to rethink traditional approaches to risk management. This study focuses on climate risk indicators and their integration into banking practice, focusing on implications for financial performance and resilience. Drawing on studies, case analyses and regulatory reports published between 2000 and 2024, this review examines methods such as stress testing, scenario analysis, econometric modelling and big data analytics. Past research and information had pointed towards the improved resilience of low and non-performing products. This has been particularly visible in Europe and New Zealand (Day, Gan & Teece, 2022; ECB 2022). On the contrary, Asian (Sub-continent) and Middle Eastern and African markets have indicated some deficiencies from a regulatory and information perspective (Asian Development Bank, 2021). The need for standardized methodologies across the globe has therefore been a key finding. Availability to data (translated to information) is a visible gap that will need focus. As such the need to shift towards Climate Risk (CR) integration on a global platform will be key in archiving parity within this space (Hong, Karolyi & Scheinkman, 2023).

    Keywords: climate risk indicators, financial sustainability, credit risk management, climate change adaptation, green finance