Climate vulnerability and credit risk: challenges and approaches for the banking sector

Andrzej Sopoćko, Paweł Niedziółka and Renata Karkowska ()
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Andrzej Sopoćko: University of Warsaw, Faculty of Management
Paweł Niedziółka: Warsaw School of Economics, Institute of Banking
Renata Karkowska: University of Warsaw, Faculty of Management

Bank i Kredyt, 2026, vol. 57, issue 2, 135-160

Abstract: This study examines the integration of climate risk into credit risk assessment within the banking sector. We review the types of climate-related risks and the channels through which they may affect financial institutions, including physical risks from extreme weather events, transitional risks, and regulatory pressures. The paper highlights key challenges in incorporating climate considerations into credit risk models, notably data limitations at both national and firm levels, as well as the limited historical data on climate-related financial impacts. The aim of this study is to examine the impact of climate risk on the credit risk of commercial banks. The empirical analysis is based on a sample of 438 commercial banks from 54 countries worldwide, spanning the period from 2016 to 2022. Our findings reveal complex and sometimes counterintuitive relationships, underscoring that integrating climate risk into credit assessments is a methodologically demanding process that requires careful interpretation of both data and indicators.

Keywords: climate risk; credit risk; physical risks; transition risk; ND-GAIN index; banking (search for similar items in EconPapers)
JEL-codes: G21 Q51 Q58 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpbik:v:57:y:2026:i:2:p:135-160

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