Own CBA shares? $31b of the bank’s home loans face increasing climate risks

The Commonwealth Bank of Australia (ASX: CBA) share price slipped 0.29% on the release of its annual report earlier this month. And released alongside the company’s earnings was its inaugural climate report, produced in partnership with the CSIRO.

Astoundingly, the report found a significant chunk of the bank’s home loan portfolio could be at increasing risk of natural catastrophes.

Let’s take a closer look how climate change could put a disastrous dint in CBA’s portfolio.

Right now, the CBA share price is $97.63, down 1.34% on the day.

$31.2b of CBA home loans at risk of climate change

Floods, cyclones, and fires could pose a greater risk to Australian homes – and to CBA – than those holding shares in the bank may have thought.

Recent analysis found $31.2 billion of its Australian home loans are at risk of such disasters, which are likely to be exacerbated by climate change.

CBA chair Catherine Livingstone and CEO Matt Combyn commented in the bank’s climate report, saying:

As changes to the climate accelerate, Australia is likely to see more frequent and severe weather events such as droughts, floods, bushfires, and storms. These are some of the physical risks of a changing climate with the potential to impact economic productivity and community wellbeing.

Right now, 3.1% of CBA’s assessed exposures are located in areas with potentially increasing climate risks, such as cyclone-exposed coastal regions, low-lying flood plains, and rural areas close to urban fringes.

And such areas might soon expand. The report noted that, under a severe physical risk scenario for climate change by 2050, cyclones could migrate south. It stated:

If this happened in the north of New South Wales, where construction standards have not been designed to resist cyclones, material losses could be observed which are not currently reflected in our current estimates.

Currently, 38,000 properties mortgaged by the bank, with a combined value of $11 billion, are at risk of cyclones.

Another 56,000 – $19 billion worth – are at risk of flooding while 5,000 – worth a total of $2 billion – are at risk of fire.

It also found $14 billion of its home loans are in communities economically dependent on the coal value chain. Of course, much of that value is at risk of the climate transition.

CBA share price snapshot

The CBA share price has been outperforming the broader market so far this year.

It has slumped 4% since the start of 2022 and has dumped 2% since this time last year.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has slipped 8% year to date and 6% over the last 12 months.

The post Own CBA shares? $31b of the bank’s home loans face increasing climate risks appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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