The World Bank’s International Finance Corporation (IFC) is launching an initiative in Europe to equip financial institutions with the knowledge, tools, and skills needed to manage climate-related risks effectively.
Climate-related disasters have resulted in approximately €650 billion ($719 billion) in losses across Europe from 1980 to 2022, averaging around €15.5 billion ($17.2 billion) annually. Financial institutions have also faced significant losses, with World Bank research indicating that non-performing loan ratios can increase by 0.37 percentage points following severe climate and environmental disasters.
The projected impacts of climate change in the region demand urgent action to enhance resilience. As a result, the European Union’s regulatory framework is urging banks to integrate climate risk into decision-making processes and prioritize managing risks in their loan portfolios while financing sustainable initiatives.
To support financial institutions in developing robust climate risk management strategies, IFC is introducing ClimaLab, an initiative created in partnership with the government of the Netherlands. This first-of-its-kind initiative by a multilateral development institution includes a series of climate-focused programmes aimed at building capacity for climate resilience and better-integrating climate and sustainability measures into management practices. These programmes are tailored to meet the specific needs of different regions.
The goal of ClimaLab is to empower financial institutions with the knowledge and skills necessary to understand the impact of climate risks on their portfolios, explore sustainable investment opportunities, and design effective strategies for their transformation journey.
“Climate change poses a significant financial risk to economies, and financial institutions play a crucial role in mitigating this risk. Through ClimaLab, we aim to empower banks and other financial institutions to not only navigate the complexities of climate risk but also seize the opportunities that arise from the transition to a low-carbon economy,” said Liliana Pozzo, IFC Sustainable Finance Advisory Services Manager Latin America and the Caribbean and Europe.
IFC is currently piloting ClimaLab with select banks in the region to refine its curriculum and materials for maximum impact. The official ClimaLab cohort in Europe will begin in November, focusing on climate risk management and the goals of the Paris Agreement. Developed by IFC in collaboration with Management Solutions, an international business consulting firm, the programme will help financial institutions assess climate-related risks, incorporate them into required disclosures and sustainability reports, and ultimately develop transition and adaptation strategies that align with regulatory expectations.