The Oxford Sustainable Finance Group and the 2° Investing Initiative have released a report estimating that the financial sector could face an additional loss of $150 billion per year if climate action by companies is delayed. The report analyzed publicly listed companies in four of the most climate-critical sectors, and found that they are insufficiently aligned with the net-zero transition. This means that even an early transition in 2026 is likely to be disorderly, with the overall estimated cost to the financial sector amounting to $2.2 trillion. On top of that, for every year the transition is delayed, financial institutions could rack up additional costs of $150 billion annually due to climate transition-related changes in market and credit risk. Since this initial analysis did not capture every sector, these costs represent a lower-bound estimate and could be considerably higher when factoring in both broader economy and non-public companies. The greatest cost is borne by financial institutions that have the highest portfolio exposure to firms most at risk from the transition. This underlines the need for bottom-up stress tests with sufficient granularity to distinguish amongst financial institutions with exposure to the worst-performing firms.
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