Norwegian banks are pricing climate risk blindly

Finans Norge, the Norwegian financial industry association, recently published The role of the financial sector in the transition to a low-emission society. It identifies three prerequisites for the financial sector to play its part in the green transition: predictable regulatory frameworks, risk-sharing and correction of market failures, and access to decision-relevant information.

That third prerequisite is the least controversial in public debate, and the most underestimated in practice.

The problem with "we need better data"

The financial industry has for years pointed to the need for better climate risk data. Finans Norge is right that this is a prerequisite for transition. But the argument often stalls at an abstract level: more data, better data, more comparable data.

The more useful question is: what actually happens when the data is missing?

Consider a Norwegian bank assessing its mortgage portfolio against physical climate risk. The bank knows that climate change is increasing the frequency of flooding, surface water runoff, and landslides. It knows this affects the value of properties used as collateral. It knows the EBA (European Banking Authority) expects these risks to show up in credit assessments and capital requirements.

But what does the bank actually know about a specific property in Bergen, where steep terrain and ageing stormwater infrastructure make surface flooding a recurring problem? Or in Drammen, where known quick clay zones sit beneath residential neighbourhoods?

In practice: very little. NVE publishes flood hazard maps. Municipalities have land-use plans. But none of this gives the bank a systematic, machine-readable, portfolio-scalable way to assess which of the thousands of properties on its books are actually exposed, to which hazard, with what probability, and at what scale of potential loss.

The bank doesn't ignore the risk. It prices it blind.

What makes information actually decision-relevant

Finans Norge states that access to information about weather and nature-related hazards should be a public good. That's an important principle. But it's equally important to understand what makes information decision-relevant, rather than information that exists but can't be used.

For a bank assessing climate risk across a portfolio, the information needs to meet four criteria.

Geographic granularity. Risk varies dramatically over short distances. Hazard maps at the municipal level aren't enough. Risk must be linked to the individual property, not to the postal code or municipality it belongs to.

Quantitative form. Risk assessments in finance require numbers, not categories. "High risk" isn't sufficient. What is the expected damage frequency? What is the probability of an extreme event within ten, 20, or 30 years, within the term of the loan?

Portfolio scale. A bank doesn't assess a hundred properties. It assesses tens of thousands. The information must be processable systematically, not property by property.

Cross-asset comparability. For a bank reporting to the EBA or calculating capital requirements under the CRR (Capital Requirements Regulation), risk must be aggregatable and comparable across different asset classes and geographies.

This type of information doesn't exist in publicly available form in Norway today. Not in the form the financial sector needs to integrate it into standard credit analysis.

Both outcomes are bad

When this information is missing, banks either underprice risk or overprice it. Properties in flood-prone areas get priced the same as unexposed properties, leading to misallocated capital and avoidable losses. Or banks compensate with higher general margins across areas they perceive as risky, penalising sound projects indiscriminately. Both outcomes share the same root cause: the financial sector lacks the data foundation that Finans Norge rightly calls a prerequisite.

What needs to happen

Finans Norge is clear that policymakers bear responsibility for facilitating data access. That's correct, but the responsibility doesn't rest with policymakers alone.

The financial sector needs to demand the information it needs concretely: property-level data on flooding, surface water, and landslides, with probability intervals, machine-readable and integrable into standard credit models. "We need better climate risk data" is not a demand. It's a wish.

Someone needs to bridge the gap between existing data sources (NVE, DSB, the Norwegian Mapping Authority, MET Norway, Copernicus) and the systems banks actually use for portfolio analysis and risk reporting. This isn't just data aggregation. It's translation into financial decision-making tools.

And this type of risk assessment needs to become a normal part of credit analysis, not a sustainability add-on, but a natural component of assessing collateral values and counterparty exposure.

A prerequisite that can already be met

What's striking about Finans Norge's third prerequisite is that it doesn't depend on new technology, new regulation, or new political decisions. It depends on existing information being organised and made usable.

Most hazard data already exists. NVE has flood zones. DSB has natural hazard risk data. Municipalities have land-use plans. The insurance sector holds damage histories. What's missing isn't the data itself. It's the infrastructure that makes it usable in financial decision processes.

This is a solvable problem. And it's an urgent one, not because regulation demands it tomorrow, but because the climate change that makes the information necessary is already underway.

We built Telescope to solve exactly this problem. Learn more about the screening module for financial institutions, or get in touch to discuss what climate risk data could mean for your portfolio.