Banks worldwide are being urged to seize a climate adaptation financing opportunity worth up to $9 trillion by 2050, according to new UN-backed guidance that calls for lenders to embed climate resilience into their core strategy, governance, and lending operations.
The “Practical Guidance on Implementing Adaptation and Resilience for Banks,” released Saturday by the United Nations Environment Programme Finance Initiative, outlines a structured roadmap for banks to mitigate mounting climate risks and unlock resilient financing as climate impacts accelerate globally.
The guidance arrives as 2024 was confirmed as the hottest year on record, with global average temperatures breaching the critical 1.5 degrees Celsius threshold for the first time, spurring floods, droughts and wildfires that now pose systemic threats to financial institutions’ portfolios, collateral and clients.
“This is no longer a future issue. Physical climate risks are here now — and banks that fail to act risk not only financial losses but missed market opportunities,” said Alice Anders, lead author of the report and UNEP FI official.
Climate Risk Becomes Core Banking Risk
The 80-page report, developed with major lenders including Crédit Agricole, ING, Rabobank and Standard Chartered, emphasizes that banks face direct and indirect risks from climate change, ranging from rising non-performing loans due to asset damage to falling collateral values and growing insurance gaps.
The report further advised banks to move beyond basic risk identification and integrate climate adaptation into credit risk models, governance structures, customer engagement and financial product innovation.
This includes assessing hazard exposure, client vulnerability, and adaptive capacity using a “physical climate risk equation” that reflects both immediate and long-term threats.
The report, however, warns that maladaptation — adaptation efforts that increase harm elsewhere — is a rising concern and calls on banks to apply “Do No Significant Harm” principles to financing decisions.
Six Key Imperatives for Adaptation Finance
The UNEP FI guidance identifies six strategic imperatives for banks:
- Tailor Adaptation to Local Needs: Climate risk is contextual; banks must assess local policy, market and sector-specific risks to act effectively.
- Embed in Core Strategy: Adaptation must be integrated into governance, risk, lending and product development — not treated as a standalone effort.
- Innovate Products and Portfolios: Lenders should support clients with tailored financing, including sustainability-linked loans and resilience-linked lending criteria.
- Prioritize Client Engagement: Banks are encouraged to proactively support clients’ adaptation efforts and assess adaptive capacity during onboarding.
- Champion Systemic Resilience: Banks can co-finance resilient infrastructure and influence broader policy through public-private partnerships.
- Progress Iteratively: Institutions are urged to begin with practical steps and scale up as capabilities and data access improve.
From Strategy to Execution
The guidance breaks down climate resilience implementation into three core pillars: assessment, strategy and action, reinforced by a fourth “continuous improvement” cycle.
Banks are advised to begin by assessing physical climate risks using available data, sectoral vulnerability analyses and scenario planning tools and to progressively deepen assessments through direct client engagement and asset-level analysis.
From there, institutions are encouraged to define their strategies by aligning with national adaptation plans, setting measurable targets, and embedding accountability through effective governance and incentives.
Action involves reshaping portfolios, revising underwriting standards, supporting clients, and enhancing disclosures using emerging standards such as International Financial Reporting Standards S2.
Real Estate and Agriculture in Focus
The report highlights real estate and agriculture — sectors particularly vulnerable to climate impacts — as key priorities for adaptation lending.
UNEP FI suggests that banks can finance climate-resilient buildings, drought-resistant crops, nature-based solutions, and early warning systems, all while tapping into public-private blended finance.
Market Signals and Peer Pressure Mount
With regulators, including the European Central Bank and Bank of England, sharpening expectations on climate risk management, the guidance also helps banks prepare for potential legal liabilities and supervisory scrutiny.
Disclosure expectations are rapidly evolving, with pressure mounting to align with global standards such as the Task Force on Climate-related Financial Disclosures and the forthcoming Transition Plan Taskforce in the UK.
“Adaptation finance is fast becoming a competitive differentiator. Banks that lead will not only reduce downside risk — they will grow new business lines, build trust and enable systemic resilience,” the report concludes.
