Global Risk and Resilience in Sustainable Climate Finance: Behavioral, Financial, and Governance Implications for Financial Institutions

Climate change presents a paradox: regardless of ongoing debate about its causes or magnitude, the associated physical, transition, and liability risks pose tangible and increasingly material challenges for financial institutions (Carney, 2015; Peterson et al., 2023). This study examines climate-related financial risk through an integrated lens that combined extant literature, behavioral analysis, a detailed case study, and original empirical evidence drawn from a survey of ten executives and board members across seven U.S.-based credit unions. Survey findings revealed that most participants had not deliberately incorporated climate risk into strategic or risk-management processes; instead, attention to climate-related issues was often incidental or reactive. Several primary risk channels influencing institutional financial stability emerged: supply chain disruption, technology-related disruption (including business continuity and innovation-induced risk), and policy or regulatory transition risk. The article explores how these risks affect financial resilience, governance structures, socio-economic and geopolitical dynamics, and technology and sustainability strategies, with particular emphasis on managerial decision-making and board oversight (Laliotis & Lamichhane, 2023; OECD, 2022). Long-tail risk and the skewness of climate-related disruptions are examined to illustrate the inadequacy of short-term planning horizons (Dietz et al., 2016). A detailed case study of California-based Meriwest Credit Union demonstrates how climate risk manifests operationally and strategically within a community-based financial institution. Grounded in prospect theory and enterprise risk management (ERM) (Freeman et al., 2010; Kahneman & Tversky, 1979; Paine, 2020), this study’s primary focus was the behavioral (prospect theory) and enterprise risk management theoretical framework (ERM). The study suggests that deliberate, long-term, and behaviorally informed climate-risk management is essential for sustaining financial stability and organizational resilience in a low-carbon transition.