Balancing Green Finance and Social Equity: Poland’s Banking Exposure to Transition Risks

The World Bank’s study introduces “just transition risk” as a critical financial concern for banks, highlighting the social and reputational fallout from climate policies. Using Poland as a case study, it reveals that 17.2% of bank credit is exposed to sectors vulnerable to climate-driven disruptions.

In a timely contribution to climate finance discourse, the World Bank’s Finance, Competitiveness and Investment Global Department, in collaboration with research efforts from institutions like the Grantham Research Institute on Climate Change and the Environment, the European Banking Authority (EBA), and the Network for Greening the Financial System (NGFS), presents a pioneering analysis of “just transition risks.” Pietro Calice’s policy research paper reframes the conversation around decarbonization by shifting attention from environmental and regulatory risk to social and reputational exposure, especially as it pertains to financial institutions. At the center of this analysis is a novel risk category: just transition risk, which reflects the potential negative financial impacts on banks stemming from the social consequences of climate transition policies, such as job losses, community disruption, and legal liabilities. These risks are not merely peripheral; they are emerging as core considerations in assessing the future of banking stability in carbon-intensive economies.

Poland: A Test Case for High-Stakes Transition

Calice’s analysis zeroes in on Poland, a country whose reliance on fossil fuels, particularly coal, is among the highest in Europe. With more than 170,000 people employed in the coal sector and over 500,000 in industries facing transformation, such as steel, cement, and vehicle manufacturing, Poland serves as a revealing case study. The study uses firm-level credit data from Poland’s national credit bureau, Biuro Informacji Kredytowej (BIK), comprising over 200,000 records, to assess Polish banks’ exposure to what are termed “Just Transition Relevant Sectors” (JTRS). These include both declining sectors expected to suffer direct job losses and transforming sectors that require adaptation to low-carbon processes.

The numbers are telling. As of September 2022, 17.2 percent of total bank financing in Poland was exposed to JTRS, highlighting substantial potential vulnerability. Of this, a staggering 94 percent of exposure is in transforming sectors such as transportation, which alone accounts for 9.5 percent of all financial claims. Fossil fuel-related industries, while smaller in credit volume, still pose high-intensity risks due to their social and environmental sensitivity.

Mapping Risk Beyond the Balance Sheet

What sets this paper apart is its spatially sensitive analysis. Risk isn’t just about sectors; it’s about places. The European Union’s €19.2 billion Just Transition Fund (JTF), part of the broader Just Transition Mechanism (JTM), is designed to cushion the blow for regions most affected by decarbonization. In Poland, five regions Śląskie, Małopolskie, Łódzkie, Dolnośląskie, and Wielkopolskie have been identified under the Territorial Just Transition Plans (TJTPs) as eligible for JTF support. Despite this, only 2.7 percent of total Polish bank credit to JTRS lies in JTF-covered regions, while a striking 9.1 percent is concentrated in areas outside the fund’s protection.

This uneven coverage is significant. In regions like Śląskie, where coal and other energy-intensive industries dominate, 24 percent of credit is tied to JTRS. While JTF support might mitigate some of the transition’s negative effects, residual risks, including reputational backlash, legal challenges, and public resistance, can still erupt, especially if the transition is perceived as unjust. In non-JTF regions like Opolskie and Podkarpackie, where 80 percent of regional credit can be linked to JTRS, the absence of safety nets dramatically increases the potential for disruption.

Understanding the Mechanics of Risk Transmission

The methodology underpinning the study is as innovative as its conclusions. Calice builds upon the Climate Policy Relevant Sectors (CPRS) framework to classify industries not just by emissions or economic output, but by their vulnerability to policy and technological shifts. This refined lens considers factors like technological lock-in, the substitutability of fossil fuel inputs, and regulatory exposure. As a result, sectors like cement, basic chemicals, iron and steel, and motor vehicles emerge as both high-emission and high-risk from a just transition standpoint.

The risk transmission isn’t linear, it’s multi-layered. Social risks from climate transition can cascade into legal actions, particularly if firms (and by extension, their lenders) are seen as complicit in unjust practices like layoffs without reskilling or failing to consult affected communities. Moreover, reputational risks can erode investor and customer trust, potentially impacting profitability. Though difficult to quantify, recent studies indicate that climate litigation alone can shave off 0.5 percent of firm value, hinting at the real financial costs of social risk mismanagement.

Banks at a Crossroads: From Observers to Enablers

The report does not merely sound the alarm, it charts a path forward. It urges Polish banks, and by extension European financial institutions, to incorporate just transition risks into their governance frameworks. This includes conducting regular materiality assessments, embedding social risks into credit and investment decision-making, and actively improving data aggregation capabilities. Importantly, banks are encouraged to align with global standards like the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

Equally vital is stakeholder engagement. Banks must collaborate with policymakers, local governments, and affected communities to facilitate economic diversification and workforce retraining. Financial innovation can play a role, too. Sustainability-linked bonds and loans could be leveraged to support companies committed to a fair transition. While no Polish bank has yet signed on to the Equator Principles, a voluntary framework for managing environmental and social risk in project finance, the report suggests this could be a valuable step toward more comprehensive risk governance.

The Research makes a compelling case that just transition risk is not a theoretical construct but a fast-approaching reality for banks operating in carbon-dependent economies. With nearly one in every six zloty of Polish bank credit tied to at-risk sectors, the call to action is clear. Banks must evolve from passive financiers to active agents of a socially equitable climate transition or risk becoming casualties of the very disruption they are helping to fund.