Mainstreaming Adaptation and Resilience into Banking Practices

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Key Points

• Climate physical risks—acute (e.g., floods, storms) and chronic (e.g., droughts, heatwaves)—threaten banks, affecting asset quality, collateral values, and client operations.
• International frameworks developed by the Network for Greening the Financial System, the International Sustainability Standards Board, and the Basel Committee on Banking Supervision set reference points for climate-related supervision and risk management.
• Banks can strengthen physical risk management by applying the insurance sector’s tripartite approach: accepting diversified risks, making assets and clients more resilient to climate risks, and transferring high impact risks via catastrophe bonds and insurance-linked securities.
• Case studies include resilience-linked loans, parametric-triggered credit facilities, agricultural credit with weather-indexed insurance, and concessional lending for climate-resilient infrastructure.
• Persistent barriers—technical capacity gaps, limited hazard and vulnerability data, fragmented taxonomies, and underdeveloped adaptation finance—are most acute in low- and middle-income countries.
• The convergence of banking and insurance offers a pathway to embed climate adaptation into finance. Moving from awareness to readiness is critical to mobilizing capital for resilience and safeguarding financial stability.