Truist Financial has joined a handful of regional banks in issuing an initial accounting of the risks and opportunities that lie before it in a warming world.
For example, roughly 14% of its residential mortgage portfolio is vulnerable to some flooding risk and 24% is exposed to hurricane risk, the Charlotte, North Carolina, company said in a 28-page report issued this week. Truist also said that 14% of its commercial real estate book was exposed to flooding risk, while 19% was vulnerable to some level of hurricane risk.
Its accounting followed guidelines set out by the Task Force on Climate-related Financial Disclosures, a framework that’s likely to become familiar as bankers mull how to handle new regulatory expectations around climate risks.
In a preface, CEO Bill Rogers described the report as “a foundational step toward addressing the complex issues related to the changing climate” and laid out some of the stakes for the $522 billion-asset Truist.
“Extreme weather events can damage assets and disrupt operations and supply chains, posing significant physical risks to Truist and our clients,” he said. “Simultaneously, new policies, technologies and consumer demand shifts related to climate change represent transition risks that can potentially alter the size and nature of global, regional and local economies and the financial markets that support them.”
The big Wall Street banks have already published their own TCFD reports, but climate disclosures are still in their early days among large regional banks. In June, the $156 billion-asset Regions Financial in Birmingham, Alabama, published its first TCFD report, and the $553 billion-asset PNC Financial Services Group in Pittsburgh also published its inaugural TCFD report in August.
The industry has been driven in this direction by a number of factors, including greater shareholder pressure and growing expectations by regulators. The Office of the Comptroller of the Currency recently published a draft of its supervisory principles tied to climate risk, setting standards for how banks above $100 billion of assets should incorporate climate into areas like risk management and strategic planning. Earlier this year, the Securities and Exchange Commission sought public input on a new climate-risk reporting framework, favoring the TCFD’s rubric.
Among other things, Truist also revealed that roughly 12% of its commercial-and-industrial loan book — concentrated in oil and gas, auto, and electric power generation — faces a high risk of experiencing financial losses in the shift to a low-carbon economy. Known as transition risk, it’s one of two types of risk that banks are broadly expected to consider when accounting for the potential losses they face from climate change.
The other type is physical risk, or the risk of financial losses resulting from serious weather events like wildfires or hurricanes. In one example of physical risk, Truist shared that between 2015 and 2020 it had realized $10.3 million in net losses from physical damage to its own facilities.
Leave a Comment