Why and How Should Development Banks Take Physical Climate Risks into Account?

The physical risks resulting from climate change are those related to the direct impact of both more extreme and frequent weather or climate events and gradual changes in climate patterns. As far as banks are concerned, exposure to physical risk is first and foremost linked to the exposure of their borrowers who are most vulnerable to these climate related hazards. AFD has analyzed the exposure of its loan portfolio to these risks and has worked to integrate them in its credit origination processes. This paper presents the lessons learned throughout this experience.