Flood risk can potentially affect a large share of credit institutions’ exposures

This publication discusses the potential for flood risk to affect the share of credit institutions'' exposure. Climate change is impacting society already today and will have further consequences in the future. A successful green transition will require unprecedented efforts, both in Denmark and abroad. As a case in point, climate change and the transition to a greener economy will impact corporate earnings and economic activity. This may compromise price and financial stability in Denmark, which it is Danmarks Nationalbank’s objective to ensure. It is therefore essential that Danmarks Nationalbank increases its knowledge of how, and by how much, the climate challenges will impact various parts of the economy.

This publication has three key messages about the economic impacts of climate change: 

1.  Credit institutions have exposures collateralised by real estate at risk of flooding. These exposures account for kr. 41 billion today and could increase to kr. 198 billion by the end of this century. 
2. Some credit institutions have a high share of exposures at risk of flooding. These exposures are also concentrated in the same geographical area.
3.  Credit institutions should incorporate climate-related risks and geographical concentrations in their risk management for real estate lending.