Recently, the village of Blatten in Switzerland was buried by 3 million cubic meters of rock and mud, highlighting the disastrous consequences brought about by the melting of glaciers. Fitch Ratings pointed out that such incidents indicate that climate change is altering the risk assessment rules for mortgage loans and guaranteed bonds. With the acceleration of global warming and the frequent occurrence of disasters such as floods and mudslides, the impact of physical climate risks on asset values is becoming increasingly significant.
Will Rossiter, the head of enhanced analysis at Fitch, said that climate events will occur more frequently and intensely, which may lead to property values “dropping to zero overnight”. The European Banking Authority (EBA) has proposed requiring banks to disclose the climate risks of the underlying assets of guaranteed bonds to assess the impact of environmental threats on solvency. Scope Ratings pointed out that disclosure is only the first step, but banks that attach importance to climate risks may be favored by regulators and the market.
The market size of guaranteed bonds amounts to 3.4 trillion US dollars. Traditionally, it has been regarded as one of the safest assets due to “dual recourse rights”, but the current directives do not mandate the disclosure of climate data. The EBA plans to release revision proposals in the coming weeks to promote transparency. The industry responded that some banks have invested in analyzing the ESG risks of mortgage loan portfolios. For instance, Deutsche Pfandbriefbank has reduced its risk exposure through a green strategy.
Experts predict that regulatory authorities will intensify their focus on climate risks, and this disaster in Switzerland has sounded the alarm for the global mortgage market.
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