As the Climate Crisis rages, banking regulation becomes a key arena for climate advocacy. After all, every major economic investment-whether in fossil fuels or clean technology-requires finance, and much of that finance comes from large banks. This brings-up the notion of “climate alignment,” which is at the center of this Article. Climate alignment measures the extent to which bank lending is consistent with the kind of investments that need to be made (or avoided) for the world to meet Paris Agreement goals (aiming to limit global warming to well-below 2°C). Climate alignment is very different from the “climate risk” that commands bank regulators’ current efforts. Climate risk is about mitigating losses that climate change may cause to banks. Climate alignment flips the script, focusing instead on mitigating banks’ own impact on the climate. A central message of the Article is that rapid decarbonization requires bank regulators to shift their primary focus from risk to alignment. To this effect, the Article contrasts alignment with the dominant risk approach, explains how alignment is measured in practice, and makes specific recommendations for bank alignment disclosures. The Article comes at heels of a recent study by the European Central Bank (ECB). The study used a software called PACTA to measure climate alignment in the EU banking sector and found it to be deeply misaligned. While the ECB study is groundbreaking, it is also a missed opportunity. For one, the study is inaccessible to most readers due to the complexity and novelty of PACTA alignment scores. Even more fundamentally, the significance of the findings on alignment lost resonance due to the ECB’s continuing focus on risk. The Article revisits the ECB study to further advance the alignment agenda.

Nadav Orian Peer, Climate Alignment For Banks: The Stories That Numbers Tell, U of Colorado Law Legal Studies Research Paper No. 25-5 (2025), available here.