Anticipating climate risks to better preserve heritage.
Financial institutions, under the impetus of the European Central Bank, are deepening their climate stress-testing exercises, assessing the impact of climate change-related risks on their exposures and business models.
These efforts go beyond mere regulatory requirements and contribute to a better understanding of economic and wealth-related vulnerabilities. In particular, they highlight the importance of protecting clients’ assets in an uncertain environment.
Whether for private banks, retail banks, or insurance companies, climate risks can affect asset values, repayment capacity, the value of collateral, the insurability of assets, and ultimately the stability of the banking system.
Proper management of these risks can therefore become a key factor in preserving clients’ wealth.
By Brendan Robin, Société Générale Private Banking.
Climate risks fall into two main categories.
Physical risks refer to damage caused by extreme or chronic climate events: floods, droughts, wildfires, heatwaves, coastal flooding, and soil shrink–swell phenomena. Their increasing frequency and intensity can durably degrade a real estate asset, weaken an economic activity, or reduce the income of an entire region. These risks affect all categories of clients: individuals, entrepreneurs, and investors.
Transition risks arise from the gradual adaptation of the economy toward lower-carbon models. New environmental regulations, evolving standards, technological innovations, or changes in consumer behavior can challenge certain business models and affect asset values.
The Energy Performance Certificate (EPC)—known in France as the Diagnostic de Performance Énergétique (DPE)—is a good illustration, as it can now influence loan interest rates, the value of a property used as collateral, or the liquidity of a real estate asset.
In many cases, these vulnerabilities accumulate. A portfolio exposed to coastal real estate and to a highly carbon-intensive sector combines both physical and transition risks, thereby increasing its overall exposure.
Climate risks can materialise in the main types of financial risks
Climate risks affecting clients primarily materialise through credit, market, and insurance risks.
Credit risk: a major climate event or a business model misaligned with transition pathways can weaken a borrower’s repayment capacity. Similarly, the depreciation of a real estate asset affected by a climate hazard undermines the quality of the associated collateral.
Private clients often benefit from greater financial flexibility, but they are not entirely protected.Market risk: certain assets (exposed real estate, carbon-intensive sectors, vulnerable value chains) may experience rapid value adjustments following a climate or regulatory shock. Conversely, companies able to anticipate change and invest in the transition are increasingly seen as resilient assets.
Insurance risk: in highly exposed areas, insurance is becoming more expensive, more restrictive, or even partially unavailable. This trend directly affects property values and their long-term financing capacity.
For example, a “super prime” property facing significant submersion risks by 2050 could be more difficult to finance over a 20-year period without enhanced guarantees.
Anticipating climate impacts: a requirement for wealth management
Banks, insurers, and reinsurers now have statistical climate projections (based on IPCC scenarios and assumptions) for 2030, 2050, and 2100. This information, once reserved for internal risk management, is becoming a valuable advisory tool: helping to choose between two real estate assets based on their actual exposure to climate hazards, strengthening negotiation capacity during a purchase, guiding clients toward more resilient locations, or refining the valuation of a company before a sale.
These climate data points can become a structuring criterion in wealth advisory, alongside taxation or financial diversification.
Integrating climate risks also opens up new opportunities:
Asset allocation: identify exposure areas and shift toward more resilient and aligned assets.
Security selection: favor companies capable of investing in the transition and adapting their business models.
Private debt: incorporate environmental and social analysis to refine company valuations.
Wealth advisory: demonstrate that integrating climate considerations does not oppose performance and responsibility, but can help protect long-term value.
By combining quantitative data (stress tests, scenarios, mapping of physical risks) with qualitative analysis of corporate transition plans, Private Banking can adopt an approach focused on resilience and the sustainable preservation of wealth.
Protecting today to preserve tomorrow
In an environment marked by increasing uncertainty, taking climate risks into account is becoming an essential component of wealth strategy, alongside taxation, diversification, and investment horizon.
Anticipating climate impacts means strengthening the resilience of portfolios, preserving their value over the long term, and supporting clients in making informed choices that balance performance, security, and sustainability.
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