The Banking Industry in The Climate Transition: Risks, Regulatory Developments and Transformation Pathways

Climate change is exerting unprecedented pressures on the financial system, positioning the banking industry as a central actor in the transition towards a low-carbon economy. This paper examines how climate-related risks are being integrated into banking activity both internationally and within the Romanian banking system. Drawing on the academic literature and recent institutional and supervisory documents, the study highlights the shift from traditional risk approaches towards embedding physical and transition risks into risk-assessment models, climate stress testing, and credit policies. It further reviews developments in green financial products, banks' participation in global sustainability initiatives, and the strengthening of climate-related disclosure and reporting frameworks. In the Romanian context, the paper discusses the role of the National Bank of Romania in aligning prudential supervision with international standards, as well as the efforts of leading commercial banks to incorporate ESG criteria into business strategies and risk management. The findings suggest that adaptation remains at an early stage, characterised by incremental progress but also by significant constraints related to data availability, analytical capacity, and greenwashing risk. The paper concludes that the climate transition requires a structural transformation of banking business models and enhanced coordination among public authorities, financial institutions, and international stakeholders.