Assessing the environmental risk exposure of UK banks

In recent years, bankers have come to realise that banking operations, in particular lending, affect and are affected by the environment and that consequently the banks might have an important role to play in helping to raise environmental standards. Stricter environmental regulations have forced companies to invest in environmentally friendly technologies and pollution control measures and in turn generated lending opportunities for bankers. However, the environment also presents significant risks to banks including direct, indirect and reputational. This article begins with an attempt to define environmental risk in the context of bank lending. It goes on to assess the relative environmental risk exposures of the UK’s major clearing banks using publicly available data on current market shares of environmentally sensitive industry sectors.