In early 2025, the Southern California wildfires burned through entire neighborhoods, leaving billions of dollars in damages. Insurers scrambled to cover record-breaking payouts, and their withdrawal from high-risk regions left homeowners devastated. But the impact didn’t stop there — it rippled straight into the banking system. 

When properties lose insurance coverage, their collateral value drops. For banks holding real estate-backed loans, this means sudden, unexpected credit risk. And with the Trump administration rolling back climate regulations, financial institutions face a new layer of uncertainty: less regulatory pressure but escalating real-world exposure to climate disasters. 

1. Deregulation Doesn’t Ease Climate Risk 

Under Trump’s previous term, environmental regulations were stripped back across industries. Now, in 2025, climate policy reversals are back: emission standards are relaxed, ESG mandates are cut, and stress test requirements for climate risks are reduced. 

For financial institutions, this may seem like a regulatory ease, with fewer compliance burdens, and less oversight. But climate risk isn’t tied to policy; it’s tied to the physical reality. Wildfires, floods, and hurricanes don’t care about deregulation, and the financial losses they cause will land on balance sheets regardless of what the regulators mandate. 

This is where proactive risk management becomes non-negotiable. Tools like IFRS 9 Expected Credit Loss (ECL) forecasting allow banks to stay ahead by simulating potential future losses. Even without regulatory pressure, banks that forecast climate-driven impairment risks can prevent costly surprises. 

2. Real Estate Collateral at Risk 

Real estate is one of the most vulnerable asset classes when it comes to climate change. The 2025 LA wildfires were a devastating reminder of how quickly property values can sink. Once insurers retreat from high-risk areas, homes become uninsurable, leaving banks exposed. 

The importance has never been higher for banks to leverage risk capabilities like Portfolio Model Assumptions to model gradual collateral devaluation in climate-sensitive regions. For example, ElysianNxt’s ECL Forecasting Portfolio Model Assumption allows institutions to simulate long-term value erosion for properties in wildfire-prone areas, tracking the impact on loan portfolios. This helps banks absorb potential losses and restructure their portfolios before a crisis hits. 

3. Not All Loans Are Created Equal 

Different loan products face different climate risks. A commercial real estate loan in Miami has a very different exposure than an auto loan in Texas or a mortgage in California. 

For example: 

• Commercial Real Estate: Properties in flood or fire-prone areas are at high risk of value depreciation 

• Mortgages: Long-term risk increases when insurers pull out of climate-sensitive regions. 

• Auto Loans: Policy shifts (like reduced EV incentives or relaxed fuel efficiency standards) impact vehicle value and loan performance 

This is why financial institutions who figure out ways to segment their ECL forecasting in multilayers, such as products and locations, will stay afloat.  

With ElysianNxt’s IFRS9.NXT, banks can break down ECL impacts by product type, dynamically recalibrating as new climate events or policy changes unfold. This ultimately allows institutions to adjust pricing, lending strategies, and capital buffers long before climate risk takes form into actual credit losses. 

4. The Future Belongs to the Prepared 

Imagine it’s 2026. Climate disclosure mandates are gone, regulatory oversight is low, and another massive hurricane devastates the East Coast. Banks relying on static models will struggle to assess damage and mitigate losses, but by the time they figure something out, it will already be too late. 

The most resilient banks will be those that forecast impairment risk across multiple climate scenarios. Whether it’s a slow-burning transition risk, a sudden market correction, or an extreme weather event, scenario-based forecasting ensures institutions can adapt in real time. 

ElysianNxt empowers banks to stay ahead with dynamic, real-time recalibration of impairment forecasts. Because in an era where climate volatility meets political unpredictability, survival depends not on reacting to crises but on anticipating them. 

Want to see how ElysianNxt’s IFRS9.NXT capabilities can future-proof your climate risk strategy? Reach out for a demo and forecast climate risk today.