A trillion dollars of climate risk

24 September 2025 - 08:52 h

Press Release

New research shows fossil fuel exposures of the world’s 60 biggest banks.

The world’s largest banks carry more than $1.6 trillion in credit exposures to coal, oil and gas production and fossil-fuel power, according to research published today by Finance Watch.

Banks have more than a trillion dollars of exposure to mispriced fossil fuel assets. This is a carbon bubble that could burst, like subprimes in 2008. This risk is not properly recognised and banks are not prepared.

Banks are effectively flying blind. Their risk models either look backwards or rely on forward-looking climate scenarios that fail to capture the complexities of climate change. That allows risk to keep building up. A sudden policy shift or major climate event could trigger sharp market corrections, sending fossil asset prices tumbling.

More worrying, their mispricing of fossil fuel loans keeps financing flowing into the industry, accelerating the climate crisis, and multiplying risks across the financial system.

Julia Symon, Head of Research and Advocacy at Finance Watch

The European Central Bank recently warned that “an insufficiently orderly transition to a green economy may translate into significant losses for the banking sector on exposures related to high-emission firms”.

Yet official data shows that climate risks are still not being incorporated properly into banks’ internal models.*

Finance Watch’s research offers a solution, at limited cost. A climate systemic risk buffer would provide banks with a dedicated cushion against fossil fuel losses and discourage the further buildup of climate risk, protecting the financial system and taxpayers from a crisis. It could be introduced without affecting banks’ ability to lend to the real economy.

According to Finance Watch’s calculations, it would be relatively easy to implement such a buffer at EU Banks, which would only need to retain a few weeks of profits to fund the additional capital.

“There is a glaring prudential gap that is causing climate-related systemic risks at banks to go unchecked. Our research shows that a climate systemic risk buffer would be a low-cost, high-benefit solution to curb the build-up of these risks and make banks more resilient. Crucially, it could be introduced without affecting EU banks’ lending capacity.

“Policymakers cannot ignore a trillion dollars of mispriced climate risk sitting on bank balance sheets. The longer action is delayed, the greater the chance of a disorderly correction that will hit citizens and the wider economy.”

Greg Ford, the report’s author and Senior Advisor to Finance Watch

Key findings from A Trillion Dollars of Climate Risk

Indicator	Finding	Source (Report page)
Total fossil fuel exposures of 60 largest banks	$1.6 trillion in credit exposures (coal, oil & gas production, fossil-fuel power)	p. 8-9
EU banks’ fossil fuel exposures	$196bn (0.9% of total assets)	p. 9
Germany	$34bn (1.3% of assets)	p. 9
France	$69bn (0.6% of assets)	p. 9
Spain	$39bn (1.1% of assets)	p. 9
UK	$91bn (1.2% of assets)	p. 9
North America (US & Canada)	$269bn (1.3% of assets)	p. 9
Additional capital needed for a climate systemic risk buffer (EU average)	Equivalent to 8.5 weeks of 2023 profits (60 days)	p. 22-23

Official data confirms (supervisors and surveys)

Indicator	Finding	Source
*UNEP-FI 2025 survey of 32 banks	“The integration of climate risk into IRB models by banks is still limited, with the majority of participating banks (82 per cent) not incorporating climate risk factors into their IRB (internal ratings-based) models”	UNEP-FI p. 25
Bank of England PRA consultation (2025)	“Climate-specific risk management frameworks are still in their infancy”	BoE CP10/25, Apr 2025; report Box B
ECB 2022 thematic review	“Roughly one-fifth of the institutions have also quantified the impact of climate-related risks on their capital adequacy, for example by reflecting it in capital and profitability ratios.”	ECB, Nov 2022; report p. 33
NGFS short-term scenarios, 2025	Default probabilities for coal exposures could rise +35% by 2027; oil +11%, gas +8%	NGFS IIASA Scenario Explorer, summarised in Finance Watch report pp. 14–15

ABOUT FINANCE WATCH

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.