New legal risks for banks related to climate change and possible mitigation strategies
Abstract
Anthropogenic global warming and climate change-related risks are facts. While physical risk (which can cause damage and losses) and transition risks (due to disorderly policies and transition pathways) are generally understood, new types of risk for financial institutions are emerging in banking supervision and in so-called climate change litigation. An example of the former is the new ‘risk from misalignment’ of banks with European Union (EU) climate objectives, as recently discussed by the European Central Bank (ECB). This risk is caused by the requirement to align with EU climate change goals, which may not be compatible with the path a financial institution in a market economy might choose to adopt during the transition to cleaner energy. The second development is driven by climate activists suing banks in ‘strategic litigations’ based on the concept of ‘duty of care’, which may not require causality as a legal precondition. While these developments can be debated, they are likely to be the ‘new normal’ for financial institutions. It is proposed that these new types of climate change-related legal risks can be managed through a four-step mitigation approach as an iterative process of awareness, monitoring, active mitigation and observing emerging trends.
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Author's Biography
Udo Milkau is a ‘digital dinosaur’, having worked with digital technology since 1974. He has been involved in many innovation projects, including working on the first European securities online brokerage in 1995, and is now working as a Digital Counsellor. Over three decades he has held management positions in the automotive industry, professional services companies and transaction banking, and has served customers in Asia and Europe. In the European banking industry he was Chief Digital Officer, Transaction Banking until 2020. After studying physics, Udo worked as a research scientist in several European research centres, including CERN, CEA de Saclay and GSI Helmholtzzentrum für Schwerionenforschung. He was Chairman of the European Association of Co-operative Banks (EACB) Digital and Data Working Group, member of the EACB Payment Services Working Group and member of the European Central Bank’s Operation Managers Group (ECB OMG). Udo has published more than 130 papers, including on the digitalisation of banking, risk management/risk culture, digital economies and artificial intelligence (AI), and has written four books. He has also lectured at Goethe University Frankfurt am Main, Frankfurt School of Finance and Management and currently at Baden-Wuerttemberg Cooperative State University (DHBW in Mosbach).
Citation
Milkau, Udo (2024, December 1). New legal risks for banks related to climate change and possible mitigation strategies. In the Journal of Risk Management in Financial Institutions, Volume 18, Issue 1. https://doi.org/10.69554/ZVNC7102.
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