Filene Report: 'Transformational Change' Needed for CUs to Confront Climate Change
A new report finds climate-related issues are a threat to a majority of the credit union industry.
A detailed report released Tuesday by Filene Research Institute unveiled a potentially stark warning for the credit union industry as it relates to risks associated with climate change. The report, published by the Madison, Wis.-based think tank, bluntly estimated “that more than 60% of all U.S. credit unions and at least $1.2 trillion in credit union assets are at physical risk due to acute and chronic climate-related weather events and hazards.”
The 104-page report, “The Changing Climate for Credit Unions” laid out the data and arguments for the credit union industry to take steps to make financial, product and operational-level adjustments going forward to combat the risks associated with climate change.
The report was authored by Hofheimer Strategy Advisors Founder George Hofheimer, Filene Senior Director of Research Taylor Nelms and Senior Advisor for Financial Institutions, Ceres Accelerator for Sustainable Capital Markets Jim Scott.
Of the 60% of the at-risk credit unions, the report’s authors stated they concluded this number is a “preliminary and, ultimately, conservative estimate based on the location of more than 11,000 credit union branches (over half of all credit union branches) in Federal Emergency Management Agency (FEMA)–designated at-risk counties. More than 60% of credit union deposits, around 60% of credit union loans, and more than 57% of mortgages originated by credit unions in 2020 fall within this at-risk geography.”
According to the report, the five states with the most credit union branches geographically at risk include:
- California: 1,526 branches.
- Texas: 1,323 branches.
- Florida: 945 branches.
- Michigan: 484 branches.
- Washington: 443 branches.
The report stated, “The most straightforward way for credit unions to realize the business opportunities associated with climate change is to leverage their traditional business model of consumer (and, for some, commercial) financing” especially in the the solar and EV lending markets.
While the report’s authors did not come to any conclusions for suggesting any specific regulatory actions needed or a single response for the credit union industry, they did lay out seven steps for credit union executives to take. They advised credit unions to do the following:
- Publicly acknowledge that climate change poses a risk to their balance sheet and to their members.
- Conduct research and educate themselves, their members, and other stakeholders about climate-related risks and opportunities facing their organizations
- Begin collecting climate-relevant data for their organization.
- Adopt the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).
- Conduct climate scenario analysis of their loan portfolios.
- Invest in their organizations while leveraging partnerships and building system-wide resources.
- Foster proactive communication among credit unions, national trade associations, state leagues, policymakers, and state and federal regulators.
“Ultimately, uncertainty over the specific impacts of climate change is not a reason to avoid action but, in fact, a good reason to begin building a clearer picture of climate risks for credit unions,” the report stated.
Read More: The full Filene report, “The Changing Climate for Credit Unions.”