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Female Bank Directors Reduce Climate Risk

Having more women on the boards of US banks is likely to reduce the institutions’ exposure to climate risk, a new academic paper has found, highlighting the positive relationship between gender diversity and environmental performance. The study, entitled ‘Climate Transition Risks of Banks’, examined 34 major US banks including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Morgan Stanley. It found that while overall emissions of banks’ customers had reduced since 2015, this had been achieved by increasing the number of low-emissions customers, rather than dialling down loans to high emitters. The latter, it found, had in fact also risen. The majority of exposure was through syndicated loan portfolios, exposing banks to regulatory changes and climate-related litigation. Two key findings stood out, the authors said: first, that bigger, more highly-leverage banks were likely to have greater exposure to climate risk, posing a threat to the US financial system; and second, that there was a clear correlation between increased gender diversity on boards and lower exposure to climate risk. “The study highlights the challenges banks face in managing climate transition risks, which are complex to identify, price, and hedge,” said Professor Dr Sascha Steffen, one of the report’s authors. “This is due to the systematic nature of these risks, insufficient firm disclosures, and a lack of hedging instruments.” The paper was written by researchers at Frankfurt School of Finance & Management, the University of Zurich and the Swiss Finance Institute.

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