A stable, well-functioning financial market for allA stable, well-functioning financial market for allFI identifies transition risks in banks’ lending portfolios
There are climate-related transition risks in Swedish banks’ lending portfolios. This is the conclusion of an analysis Finansinspektionen (FI) conducted by linking lending to individual firms to emissions data from firms that are included in the EU Emissions Trading System.
The green transition, in Sweden and globally, introduces risks for some firms and markets. For a bank, for example, this could mean the risk of increased credit losses to firms that must transition.
"For financial stability as a whole, it is important for banks to identify and manage risks in their lending. Banks need to continue to work to include climate risks in their other risk management and adapt their lending accordingly," says Fredrik Öhrström, an analyst at FI.
The analysis was conducted by matching firms with installations listed in the EU Emissions Trading System with the Riksbank's credit database, which contains detailed data of the banks' lending to individual firms. The EU Emissions Trading System covers a limited number of industries and emissions from firms' own production. The results show that banks overall have limited lending to the firms included in the emissions trading system but also that there are climate-related transitions risks that the banks need to consider.
There is currently limited data for analysing transition risks, and this analysis therefore only covers a limited portion of banks' total lending. The total transition risks are probably larger than what the analysis shows.
FI intends to follow up the results of this analysis in its supervision dialogue with concerned banks and in its work with future reviews of banks' transition plans.
