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Oct 4, 2021

Honors Thesis: Climate Risk in American Financial Institutions

Ari Singer-Freeman, BSBA’21, started thinking about how climate change could effect the American banking system in the course of his studies and through his summer internships, eventually leading to the topic of his senior honors thesis research project,* “Climate Risk in American Financial Institutions.”
How did you become interested in the topic of climate risk in financial markets?
I did my sophomore summer internship in Morgan Stanley’s bank lending group and did my final project on bank risk regulation. Given the magnitude of risks that the climate crisis poses to the American economy, I was curious how well the existing regulatory framework prepares us to address those risks.
What is the biggest take-away from your research?
The existing regulatory framework is stringent enough for systematically important institutions that the impacts of climate change seem unlikely to cause systemic financial instability. However, less stringent regulation of small financial institutions, who are also more exposed to climate risk, could lead to instability in regional markets or industries.
Do you feel most American financial institutions are realistic about their climate risk?
It’s difficult to know what financial institutions’ internal control procedures for addressing climate risk are. However, even if all financial institutions take climate risk extremely seriously, it would be very difficult to quantify that risk (especially transition risk) realistically. Since Green House Gas emissions data at a company level is voluntary, self-reported, and only covers a small fraction of companies to which financial institutions lend, financial institutions cannot know for sure their exposure to Green House Gas emitters, and therefore transition risk.
*Research supported by the Kenan Scholars Program at The University of North Carolina at Chapel Hill.

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