Credit risk assessment in the climate shadow: Evidence from white and grey literature

Climate change is reshaping financial stability, making climate risk a critical component of banks' risk management. However,the absence of standardized frameworks validated by central authorities hinders banks' ability to integrate climate risk intoexisting credit risk models. This study employs a bibliometric and systematic literature review approach to examine the existingwhite and grey literature regarding the impact of climate change on credit risk components, like probability of default (PD), lossgiven default (LGD), exposure at default (EAD), and unexpected loss (UL). We highlight that innovations in climate-adjustedcredit risk estimation primarily stem from grey literature but lack empirical validation in academic research. This study encour-ages academics to refine climate-adjusted risk metrics, financial institutions to evaluate their applicability, and policymakers toestablish a more coherent regulatory approach. It also offers clarification to bank managers and practitioners on which meth-odologies are most applicable. Our study explains theoretically how climate risks affect creditworthiness and contributes to thedevelopment of standardized methodologies for their consistent integration into risk assessments.