S&P Warns of Climate Risks to Financial Sector

Standard & Poor’s Ratings Services says it will take a closer look at how banks, insurers, and asset managers are preparing for the impacts of climate change.

The ratings agency has come up with a set of indicators that it will use to identify who in the financial sector is likely to be hardest hit by climate change and which companies are more likely to gain from the shift to a low-carbon economy by getting involved in green finance and investing or otherwise beefing up their green credentials.

“We expect that, over time, climate change may have the potential to materially affect the credit profiles of some financial services companies,” S&P analysts wrote in a report released May 4.

The report said climate risks to the industry could manifest in different ways—through bad loans, devalued fossil fuel assets or more frequent claims on insurance. Regulatory pressure, reputational concerns and possible legal challenges from activists could pose even greater threats than the direct costs of climate change, it said.

Climate and Credit Ratings
S&P has already examined climate risks to sovereign and, more recently, corporate credit profiles.

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