Powerful Climate Risks: How Floods, Policy Shifts and Bank Choices Threaten Our Future

When the rain began earlier that year, people in Bole community of Yola Town of Adamawa State thought it would be a usual wet season. They did not expect the river to rise so fast that their homes would be flooded as well as their farms would disappear, or that his neigbour’s small shop would be cut off for weeks. 

In this article, I will focus on a neighbour who was a victim; Musa’s story is not unique. Across Nigeria, families, businesses and banks are waking up to a twin problem: the direct damage from extreme weather and the financial shock that comes when the world shifts away from fossil fuels. This piece explains those risks — in plain language — and shows why they matter for everyday people and the country’s financial health.

What are climate risks?

Climate risks are problems that come from changes in our climate. They fall into two main groups. 

• The first is physical risks — things like floods, droughts, heat waves and storms that damage homes, farms and roads. 
• The second is transition risks — the economic and financial changes that happen as countries move to low-carbon energy, such as new rules, higher costs for polluting businesses, and changes in customer demand. 

These two types can overlap and create complex impacts for families, companies and banks. 

Why this matters for people and towns

Imagine Tingno, in the Lamurde Local Government Area, a major rice-growing community by the river in Adamawa State. A single big flood can wipe out a season’s harvest, leaving families with no income and food shortages. When damage is big, local stores close and people borrow money to rebuild. If floods happen often, loans go unpaid and local banks feel the strain. That’s how a weather event can become a community crisis and a banking problem. Recent floods across Nigeria show how severe physical risks can be — killing people, displacing families and causing billions in damage.

How climate risks reach the financial system

There are clear routes — or channels — through which climate risks reach banks and the wider economy:

• Credit risk: Borrowers who are hit by floods, heat or other disasters may default on loans. When many borrowers fail to pay, banks face losses.
• Market risk: Prices of assets — like land, property or shares in oil companies — can fall suddenly if markets expect stricter climate rules or demand shifts to cleaner energy.
• LIquidity risk: If investors suddenly withdraw money because of climate fear, banks and markets can struggle to find cash to meet obligations.
• Operational risk: Banks’ own buildings, IT systems or staff may be affected by extreme weather, interrupting services.

These channels show that what starts as a local weather problem can ripple into national financial trouble. International bodies that study these links warn that climate risks pose a serious threat to financial stability if they are not managed. 

What are climate-related financial risks?

This phrase refers to the chance that climate change, and the world’s response to it, will cause financial losses. It includes physical damage and transition costs that reduce the value of assets or increase the cost of doing business. 

For banks, it means loans may become riskier, investments may lose value, and long-term planning becomes harder. Financial supervisors around the world now include climate-related financial risks when they review banks and insurance companies. 

Transition risks of banks — a closer look

Banks are central to any economy. In Nigeria, banks lend to farmers, small shops, oil companies and public projects. If rules change fast — for example, a new tax on carbon or a cut in finance for fossil-fuel projects — businesses that depend on old technology can lose value quickly. Loans made to those businesses then carry higher risk of default. 

In addition, reputational risk grows: banks tied to polluting industries may face pressure from customers or global investors to change. Central banks and supervisors are pushing banks to map and measure these risks so that a sudden transition does not shock the financial system. 

Real-world example: floods and Nigerian banks

When floods wash away crops and close markets, many borrowers — especially small businesses and farmers — struggle to pay back loans. In 2022 and later, Nigeria experienced major flooding that displaced hundreds of thousands and caused large economic losses. Those events matter to banks because they change repayment behaviors and the value of collateral like land and buildings. 

The Central Bank of Nigeria and banking supervisors have started to include environmental and climate considerations in banking guidance, but more work is needed to protect both people and the banking system. 

Why financial stability experts worry

Global institutions such as the IMF, the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) have highlighted climate risks as a potential danger to the global financial system. They point out that if risks are not properly disclosed and managed, losses could be large and sudden — especially if a late or abrupt policy shift forces a rapid revaluation of carbon-heavy assets. That kind of shock can move from one country to another because banks and markets are connected worldwide. 

How businesses experience climate risks

Businesses face both types of risk. A manufacturer near a coast can lose a factory to a storm (physical risk). A coal supplier can see customers move to renewables and demand drop (transition risk). Smart businesses will plan ahead, invest in resilience (like better drainage or backup power), and diversify so that one event or policy change does not threaten survival. Those that ignore the signals risk closure, job losses and unpaid loans. These effects feed back into local economies and banks.

What can regulators and banks do?

There are practical steps regulators and banks can take to reduce the danger:

• Disclosure and transparency: Require companies and banks to report their climate exposures and plans. This allows investors and supervisors to understand where risks lie. International frameworks and guidance exist to help with this work. 
• Stress testing: Simulate bad climate scenarios to see how banks would cope. This helps identify weak spots before a crisis hits. 
• Capital planning: Ensure banks hold enough capital against climate exposures so losses can be absorbed without triggering wider instability.
• Support for green finance: Encourage loans for resilient infrastructure and renewable energy by offering incentives or clear rules. In Nigeria, central bank guidance and sustainable banking principles are early steps in this direction. 

What citizens and small businesses can do

You may feel climate risks are beyond your control, but some steps help reduce harm:

• Know your risk: Find out if your community is flood-prone or drought-prone and plan accordingly. Local knowledge matters.
• Insurance where possible: Even simple insurance can reduce financial shock after a disaster. Explore micro-insurance products made for small farms and traders.
• Save and diversify income: If one source of income fails, another can keep the family afloat.
• Ask questions of banks and leaders: Demand that local banks and politicians include climate risk in their plans. Public pressure helps speed policy and private action.

A pathway to resilience — mixing local wisdom and policy

Resilience grows when communities, banks and government act together. For example, better drainage systems and early warning systems protect homes. Banks can offer flexible repayment plans after disasters or lower-cost loans for resilience projects. 

Government can support public works and clear policies that send predictable signals to markets. International guidance and research provide tools; Nigeria can adapt these to local realities. 

Closing

Back in Musa’s village, neighbours pooled funds to rebuild a shared road after a flood. The local microfinance bank agreed to restructure some loans, and a small NGO helped plant flood-resistant crops. These are small acts, but they show how people respond when climate risks hit home. 

At the same time, regulators and banks must do their part — mapping risks, requiring clear disclosures and supporting finance that builds resilience rather than fragility. If they do, families like Musa’s have a better chance to rebuild and thrive. If they do not, climate shocks will keep pushing people into poverty and strain our financial system. The choice — and the work — is urgent.