Credit Risk Assessment in the Climate Shadow: Evidence From White and Grey Literature

ABSTRACT 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 into existing credit risk models. This study employs a bibliometric and systematic literature review approach to examine the existing white and grey literature regarding the impact of climate change on credit risk components, like probability of default (PD), loss given default (LGD), exposure at default (EAD), and unexpected loss (UL). We highlight that innovations in climate‐adjusted credit risk estimation primarily stem from grey literature but lack empirical validation in academic research. This study encourages academics to refine climate‐adjusted risk metrics, financial institutions to evaluate their applicability, and policymakers to establish a more coherent regulatory approach. It also offers clarification to bank managers and practitioners on which methodologies are most applicable. Our study explains theoretically how climate risks affect creditworthiness and contributes to the development of standardized methodologies for their consistent integration into risk assessments.