Banks Are Underprepared for Climate Adaptation, Report Finds

A report highlights that most banks lack adequate plans to address the physical impacts of climate change.

• Climate X reports that 67% of banks do not have comprehensive climate adaptation strategies.
• The lack of preparedness exposes banks to over $1 trillion in potential climate-related losses.
• Regulatory pressure is mounting for banks to prioritize climate adaptation alongside mitigation.

Climate X Exposes Banks’ Adaptation Gaps

A recent report by climate risk analytics firm Climate X revealed that a majority of global banks are severely underprepared for the physical risks posed by climate change. The study analyzed over 200 banks worldwide, examining their readiness to adapt to climate-related events such as extreme weather, floods, and rising sea levels. The report shows that 67% of these banks do not have robust plans in place to address physical risks from climate change, while many focus primarily on reducing carbon footprints and meeting regulatory requirements around sustainability reporting.

Why This Is Important

Climate change poses both immediate and long-term risks to the financial sector. The physical impacts of climate events—ranging from infrastructure damage to operational disruptions—could leave banks vulnerable to huge financial losses. According to the report, climate-related risks could result in up to $1.1 trillion in asset losses for banks by 2030 if they fail to take action. The lack of preparedness not only threatens the banks’ portfolios but also the broader economy, as financial stability hinges on the ability of these institutions to manage systemic risks.

The global market for climate adaptation is becoming increasingly critical as climate risks escalate. Research shows that climate-related damage has already cost the global economy an estimated $2.5 trillion over the past two decades. In terms of adaptation investment, however, only 20% of climate finance goes toward adaptation efforts, with the majority focused on mitigation (i.e., reducing carbon emissions). Banks, in particular, have been slower to integrate adaptation strategies into their risk management frameworks, leaving significant vulnerabilities in regions prone to extreme weather, rising sea levels, and other climate impacts. As the climate crisis intensifies, financial institutions will need to shift more resources toward adaptation to protect their assets and maintain economic stability.

Adaptation Plans Fall Short Across Key Regions

According to Climate X, European banks have made more progress than their U.S. and Asian counterparts in climate adaptation efforts, but even these institutions show significant gaps. In high-risk regions, such as Southeast Asia, 80% of banks lack comprehensive adaptation plans despite facing some of the most severe climate risks. In the U.S., where wildfires and hurricanes are increasingly common, 60% of banks have not fully accounted for these physical risks in their financial projections. One executive from Climate X commented, “Financial institutions are focused on mitigating climate change but failing to account for the immediate impacts that are already being felt. The time to act is now.”

Regulatory Pressure on the Rise

The findings from the report suggest that regulators are likely to tighten requirements around climate adaptation strategies. Financial institutions may soon face mandatory reporting standards on how they plan to address physical climate risks. As regulatory bodies like the European Central Bank and the U.S. Securities and Exchange Commission (SEC) ramp up their focus on climate risk, banks that do not proactively address these issues could face penalties and increased scrutiny. To avoid this, banks must shift from merely measuring their carbon footprint to building comprehensive adaptation frameworks that protect their assets in the face of escalating climate impacts. As climate risks grow, adaptation will become a central pillar of financial stability across the sector.