Until now, it’s largely been equity holders and investors leading the charge on physical climate risk. But lenders in the United States are beginning to consider their exposure to climate hazards like wildfires and floods.
As climate volatility becomes more frequent and severe, banks and mortgage lenders are starting to ask: How vulnerable is our loan book? The answer has significant implications for everything from asset valuation to loan performance and regulatory compliance.
Why Now?
There are two main drivers accelerating lender interest in physical climate risk:
- Regulatory pressure is building: In the U.S., California’s SB 261 requires large financial institutions to disclose climate-related risks. These frameworks demand not just a broad climate narrative, but quantified exposure and mitigation strategies.
- Insurance premiums are rising or becoming unavailable in certain regions: In high-risk areas, insurance premiums are skyrocketing or being pulled entirely. Without coverage, borrowers may default, properties lose value, and lenders are left exposed.
These drivers are pushing lenders to both evaluate their physical climate risks at portfolio level and incorporate this data in their loan origination due diligence process.
Climate Risk in Lender Due Diligence
Traditionally, environmental due diligence looked backward—at contamination and past land use. Today, leading lenders are enhancing that process with forward-looking climate analysis. ASTM has created useful guidelines which outline processes and make suggestions for the risks that should be evaluated.
This includes:
- Property-level hazard scores (e.g., wildfire, flood, heat, storm surge)
- Projections under multiple warming scenarios
- Mitigation recommendations for asset owners
- Portfolio-level dashboards to identify systemic vulnerabilities
Climatecheck's Role in Lender Due Diligence
As lenders prepare to evaluate and manage their physical climate risks, ClimateCheck helps by:
- Providing physical climate risk assessments for entire loan books
- Easy-to-read property level reports for due diligence and underwriting
- API and dashboard integrations for internal risk teams
- Compliance-ready outputs aligned with SB 261, OSFI, TCFD, and more
For more information please reach out to info@climatecheck.com or learn more at https://climatecheck.com/solutions.