Climate Risk Benchmarking 2026

Banks are struggling to translate improved climate data into effective risk management strategies, according to a recent report by Risk Benchmarking released Friday. Although data availability is often cited as the biggest hurdle, the research reveals that even with expanding datasets, institutions face significant challenges in modeling and systems integration.

The study, which surveyed 43 banks, found that many are hampered by difficulties in incorporating climate data into existing risk frameworks. This suggests that simply increasing the volume of climate-related information isn’t enough to drive meaningful change in financial decision-making.

“Data availability is the biggest challenge facing climate risk managers – but improving datasets is not the end of the story,” the Risk Benchmarking report states. The findings align with a recent perspective article published in Frontiers in Climate, which highlights the strengthening link between climate science and decision-making, particularly in the wake of increasingly frequent and severe weather events. That article emphasizes the importance of learning from past extremes and implementing impact-based early warning systems.

The limitations extend beyond technical hurdles. The Risk Benchmarking research points to a need for better alignment between climate risk assessments and core banking functions, such as credit risk modeling. More than a third of banks surveyed do not yet quantify the impact of climate risk on their credit portfolios.

Experts suggest that a lack of standardized methodologies and regulatory clarity also contributes to the problem. Guidance from organizations like Cal-Adapt stresses the importance of a tailored approach to using climate projections, considering the specific decision context and available data. However, the absence of consistent rules can create uncertainty and hinder widespread adoption of climate risk management practices.

The report also notes a varied distribution of responsibility for climate risk within banks. Ownership is often shared among risk, sustainability, and business units, leading to potential fragmentation and a lack of clear accountability. Dedicated climate risk teams vary significantly in size, further complicating efforts to integrate climate considerations into broader financial strategies.

Strategic frameworks, as outlined in a NASA-funded report, should prioritize enhancing impact-related and open-access climate services globally. Continuous improvements in predictive modeling and observational data are also crucial, alongside ensuring climate science remains relevant to decision-makers at all levels.

As of Friday afternoon, no major financial regulators had issued a public response to the Risk Benchmarking findings. The European Centre for Medium-Range Weather Forecasts is scheduled to host a workshop next month on improving the translation of climate data into actionable insights for the financial sector.

Banks are struggling to integrate climate change into their risk management frameworks due to a significant lack of reliable data, according to new research published Tuesday by Risk Benchmarking. The study, which surveyed 43 banks, found that a “dearth of reliable data” remains the biggest obstacle to effectively assessing and managing climate-related financial risks.

The findings come as regulators globally are increasing pressure on financial institutions to better understand and disclose their exposure to climate risk. A recent paper from the International Monetary Fund outlined good practices for supervisors, emphasizing the need to integrate climate-related risk into corporate governance and internal controls. However, the Risk Benchmarking report suggests that practical implementation is hampered by data limitations.

While 81% of banks have established dedicated teams to address climate risk, the size and scope of these teams vary considerably, according to a separate report from Risk.net. Ownership of climate risk management is also shared across multiple departments, including risk, sustainability, and business units, creating a fragmented organizational picture.

The lack of data isn’t limited to assessing the physical risks of climate change, such as extreme weather events. Banks also face challenges in quantifying the financial impact of the transition to a low-carbon economy. According to Ferma research, approximately 50% of risk managers believe that some key business risks are becoming uninsurable due to climate change, highlighting the growing uncertainty in the insurance market.

Client engagement and data pooling among lenders are seen as potential solutions to address these data gaps, but the Risk Benchmarking research indicates that widespread adoption of these approaches is unlikely in the near future. The annual climate protection gap currently stands at $200 billion globally and continues to widen, further complicating efforts to mitigate climate-related financial risks.

The increasing responsibility for managing climate risk is falling to Chief Risk Officers (CROs), but a clear organizational structure for handling these risks remains elusive, according to the Risk.net study. This lack of clarity, combined with data deficiencies, presents a significant challenge for banks as they navigate the evolving landscape of climate risk management.