[Research Contribution] Climate Adaptation and Ownership Structure: Determinants of Global Bank Performance
27 December, 2025
Keywords: Climate adaptation; bank performance; ownership structure; credit risk; sustainable finance.
Climate change has become a tangible reality, with profound impacts on urban life, particularly on the financial and banking markets. Faced with the risk of revenue decline or bankruptcy in climate-sensitive industries, which in turn leads to rising non-performing loans and affects financial stability, climate adaptation is both a mandatory requirement and an opportunity to reshape the banking market. Motivated by this concern, a research team from the ISB College of Talents at the University of Economics Ho Chi Minh City (UEH) analyzed data from over 6,000 global banks from 2002–2019 to assess the impact of climate adaptation readiness and the role of different ownership types on bank performance.
The Urgency of the Research
Climate change has become one of humanity’s greatest challenges in the 21st century. No longer a distant warning, its effects are clearly visible in the increasing frequency and intensity of extreme weather events such as tropical storms, prolonged droughts, widespread floods, and extreme heatwaves. IPCC data shows that from 2011–2020, the global average temperature rose by 1.09°C compared to the pre-industrial era, causing trillions of dollars in damage to the global economy. Notably, the World Bank estimates that temperature shocks alone cost the global GDP $2.25 trillion in 2018.
The impact of climate change is not confined to the environmental sphere but extends to all socio-economic aspects, with the financial and banking system playing a central role. As a key financier of economic activities, banks face a dual impact: they are directly affected by climate risks (physical and transition risks) and are under pressure to support the economic transition to a sustainable development model.
Although the link between climate change and the financial system has been emphasized by many international organizations (BCBS, ECB, NGFS), there is still a lack of large-scale, global empirical evidence on the impact of climate adaptation readiness on bank performance. In particular, the role of ownership structure (state-owned, domestic private, and foreign-owned banks) in moderating this relationship has not been fully analyzed. This study aims to contribute to the theoretical foundation by analyzing data from over 6,000 banks across numerous countries from 2002–2019, thereby providing scientific evidence and policy recommendations.
The primary focus of this research is commercial banks—institutions directly impacted by climate risks. The findings are also useful for financial and banking regulatory bodies in developing regulations that integrate climate risk into supervision and governance. Additionally, investors and shareholders can use these results to assess the impact of climate adaptation on financial performance and adjust their investment strategies accordingly. Finally, international organizations and climate policymakers will have a stronger scientific basis for promoting sustainable finance.
Research Findings
Climate change poses two main types of risks to banks. The first is physical risk—asset damage and operational disruption due to natural disasters or environmental changes. The second is transition risk—arising from changes in policies, regulations, and markets during the shift to a low-carbon economy. These risks directly impact: (1) Asset quality—increasing non-performing loans (NPLs) as customers lose their ability to repay debt; (2) Profitability—reducing profit margins and increasing operational and provision costs; and (3) System stability—eroding market confidence and increasing stock price volatility.
Furthermore, banks’ response strategies to climate change initiatives are influenced by stakeholder pressure, often aimed at enhancing reputation, and can be affected by changes in ownership structure. Large investors, as key stakeholders, are increasingly pushing the banks they invest in to adopt responsible practices that account for climate change impacts, while implementing strategies to enhance reputation and create long-term value. Therefore, this study also analyzes the role of ownership structure in moderating the relationship between climate adaptation readiness and bank performance. Unlike many previous studies that focused only on the percentage of shares held by large shareholders without distinguishing between concentration and ownership type, our research methodology classifies shareholders by their nature and characteristics to reflect the ownership structure. This approach allows for a clear identification of the objectives and climate adaptation priorities of each type of bank ownership.
To assess the impact of a country’s climate adaptation readiness on bank performance and risk, the study uses the Climate Adaptation Readiness Index (CARI) from the Notre Dame Global Adaptation Index (ND-GAIN). Financial and ownership data for banks were extracted from the Orbis database by Bureau van Dijk, and country-level control variables were sourced from the World Bank’s World Development Indicators.
Empirical Results:
- On the impact of climate adaptation on bank performance: The analysis shows that high climate adaptation readiness (CARI) has a positive impact on bank performance, reflected in an increased Return on Equity (ROE) and a decreased Non-Performing Loan (NPL) ratio. In countries with strong climate adaptation capacity, banks benefit from a more stable business environment, limited operational disruptions from natural disasters, and more opportunities to participate in green finance projects like renewable energy and sustainable infrastructure. This also helps enhance brand reputation, thereby attracting more customers and investors. The positive impact of climate adaptation is particularly pronounced in developed countries, where infrastructure and institutional systems strongly support the implementation of climate policies.
- On the prominent role of state-owned banks: The study finds that the impact of climate adaptation on state-owned banks differs depending on a country’s level of development. In developed countries, the ROE of state-owned banks increases significantly with a high CARI, thanks to clear legal frameworks, long-term development strategies, and effective public resource support. Meanwhile, in developing countries, this group of banks records a significant reduction in credit risk (NPLs) through priority lending policies for projects that enhance climate resilience and protect communities. This result reinforces the hypothesis that state-owned banks can harmoniously combine economic and social objectives while effectively leveraging national climate policies.
- Limitations of domestic private and foreign-owned banks: Domestic private banks and foreign-owned banks have not fully capitalized on the benefits of high climate adaptation levels. For private banks, strategies often focus on short-term profits and limited investment in long-term green infrastructure, leading to a weak ability to convert CARI into a competitive advantage. Meanwhile, the impact of CARI on the ROE and NPLs of foreign-owned banks is unstable, reflecting constraints from their global strategies and parent company regulations, which makes them less flexible in capitalizing on local climate policies and opportunities.
- Differences in the impact of climate adaptation between developed and developing countries: The comparative analysis shows that the impact of climate adaptation readiness (CARI) on bank performance differs significantly between developed and developing nations. In developed countries, a high CARI brings a dual benefit of increasing profitability and reducing credit risk, thanks to developed capital markets, modern infrastructure, and a complete legal system that effectively supports climate initiatives. Conversely, in developing countries, the positive impact of CARI is mainly seen in credit risk reduction, while its effect on profitability is limited due to a lack of capital, technology, and supporting infrastructure. This reflects the differences in institutional capacity and resources between the two groups of countries, which in turn affects the extent to which benefits from climate adaptation are translated into banking business results.
Contributions and Policy Implications
This study provides the first global empirical evidence on the relationship between a nation’s climate adaptation readiness and bank performance, while also clarifying the moderating role of ownership structure. The results show that in countries with high climate adaptation, banks tend to achieve higher profits and lower credit risk. Notably, state-owned banks stand out with superior performance in developed countries and a strong ability to reduce credit risk in developing countries. In contrast, foreign-owned banks have not been able to leverage the advantages of a climate-adaptive environment, reflecting barriers related to information, governance culture, and understanding of the local market.
The most significant implication of this research is its affirmation that climate adaptation is not just a social responsibility but a strategic factor that enhances performance and ensures the stability of the banking system. This is particularly important as the impacts of climate change become more evident, directly threatening the asset quality, reputation, and profitability of financial institutions.
From these results, the author proposes the following policy implications:
- For banks, it is necessary to integrate climate risk into their overall risk management framework, including business models, stress testing processes, and public reporting. Banks should also seize opportunities in the green finance market to diversify revenue streams through sustainable products and services, as well as build expertise and data systems for analyzing and forecasting climate impacts.
- For regulatory bodies, it is necessary to refine the legal framework to mandate the disclosure of climate risk information, while adopting international standards such as TCFD and BCBS. Incentives related to capital, taxes, or reserve requirements should be designed to encourage lending to green projects. Additionally, leveraging the leadership role of state-owned banks can help disseminate market standards and accelerate the sustainable transition.
- For investors and other stakeholders, climate adaptation factors should be incorporated into evaluation criteria when making investment or partnership decisions. They should also encourage long-term strategies and reduce pressure from short-term targets that may hinder capital flows into sustainable projects.
Author: Assoc. Prof. Dr. Doan Anh Tuan (Business Honours School) – College of Talents, University of Economics Ho Chi Minh City
This article is part of the series spreading research and applied knowledge from UEH with the message “Research Contribution For All.” UEH cordially invites readers to look forward to the next UEH Research Insights newsletter.
News, photos: Author, UEH Department of Communications and Partnerships
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