BOSTON—Thousands of U.S credit unions have significant unaddressed risk arising from the climate crisis, according to a new report released by Ceres and the Filene Research Institute that also suggests seven steps credit unions should be taking in response.
According to the two organizations, the first-of-its-kind analysis provides insights on how credit unions can respond to the climate crisis, mitigate their risks, and become part of a “system-wide solution.”
Ceres is a nonprofit organization that works with capital market leaders to solve the world’s greatest sustainability challenges
The report, The Changing Climate for Credit Unions, finds that more than 60% of all credit unions—and at least $1.2 trillion in credit union assets—are at physical risk from climate change.
“They face growing risks from extreme weather events including fires, floods, hurricanes, and increased transition risk, such as changes in regulation, technology, as well as legal and reputational risks,” the two organization said in releasing the report.
‘Incredibly Risky’
The report argues that it is incredibly risky for credit unions to ignore the climate threats with 60% of U.S. credit unions physically located in vulnerable locations and with credit unions having $141 billion in assets from high-risk industries that are evolving due to climate change, Filene and Ceres said.
“Our report makes clear that thousands of credit unions, and the many underserved communities they serve, have significant and unaddressed risk arising from our rapidly changing climate,” said Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “There are challenges and opportunities facing the credit union industry, both now and in the future. We hope that every credit union staff member, manager, director, and regulator will use this report and the recommendations we have outlined as a guide to inform their approach to addressing climate risk and protecting the financial savings of their members.”
“For it is only through immediate action that credit unions will become more prepared and benefit from the many growth opportunities in the markets for renewables, electric vehicle equipment, and other new and emerging sustainable technologies,” Rothstein added.
Underserved Communities to be Hit
The organizations noted that many of the communities served by credit unions are underserved and are already more likely to be severely affected by climate disasters.
Unlike a bank that may have holdings across different industries and geographies, the report also points out that a credit union’s assets would be less diversified due to their field of membership, which is likely more geographically constrained, Filene and Ceres stated.
"There is a wide range of perspectives among credit unions about how best to prepare for climate change, and climate change may not currently be at the top of the pile of strategic concerns at most credit unions,” said Taylor Nelms, senior director of research at Filene Research Institute. “This report shows that it should be, because climate change poses great risks to credit union balance sheets and offers great opportunities for credit unions to differentiate, grow, and meet emerging consumer demands.
“Some credit unions offer strong examples for their peers of how to adapt and turn risk into opportunity,” Nelms added.
“Ultimately, however, the credit union system must tackle climate change together, with a coordinated and collaborative approach that includes developing shared strategies and shared resources so that credit unions of all stripes can meet the profound challenges posed by climate change.”
Warning from Scientists
In releasing the report the two organizations noted it is being released at the same time the world’s leading scientists are warning that the window to act on the climate crisis is closing. “In April, the Intergovernmental Panel on Climate Change stated that we must utilize options in all sectors to cut global greenhouse gas (GHG) emissions by 2030 and limit average temperature rise to no more than 1.5 degrees Celsius,” the two organizations said. “In 2021, the U.S. saw losses of $145 billion in damages and 688 lives last year from extreme weather events. It is estimated that more than 40% of U.S. residents live in counties hit by climate disasters in 2021, and more than 80% experienced a heat wave.”
Seven Action Steps
The report offers seven action steps for credit unions to address climate risk, including:
- Publicly acknowledge that climate change poses a risk to their balance sheet and to their members.
- Conduct research and educate themselves, their members, and other stakeholders about climate-related risks and opportunities facing their organizations.
- Begin collecting climate-relevant data for their organization.
- Adopt the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).
- Conduct climate scenario analysis of their loan portfolios.
- Invest in their organizations while leveraging partnerships and building system-wide resources.
- Foster proactive communication among credit unions, national trade associations, state leagues, policymakers, and state and federal regulators.
Webinar to be Held
Filene and Ceres said they will hold a webinar on the issue on July 28 at 12:00 ET that will include a virtual panel of credit union leaders to further discuss the findings and recommendations of the report. Registration is now open.
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