Climate Resilience Score: Measuring Environmental Vulnerability for Credit Risk Assessment

Climate change poses a systemic challenge for the banking sector through extreme physical events, transition risks and evolving regulatory mandates. Measuring territorial climate resilience where counterparties operate is essential for robust credit risk assessment. This article proposes a macro-level Climate Resilience Score (CRS) evaluating a country’s exposure and adaptive capacity. Grounded in climate economics, the CRS integrates absorptive, adaptive and transformative capacities by combining indicators of physical risk, energy efficiency, emission intensity and circular economy performance. Methodologically, the composite index is constructed via the Analytic Hierarchy Process (AHP) aligned with European Green Deal strategic priorities, supplemented by empirical robustness checks. While not testing incremental predictive power in micro-level default models, we illustrate how the CRS informs banking risk management operationally through portfolio segmentation, stress testing and scenario analysis, in line with supervisory expectations. The framework offers a scalable, replicable tool to embed forward-looking environmental vulnerabilities into credit sustainability assessments.