This study examines how climate risk influences bank efficiency, highlighting the moderating roles of financial derivatives and carbon disclosure practices. Employing a panel dataset of 1,175 banks across 69 countries from 2001 to 2021, this study applies advanced techniques—Data Envelopment Analysis (DEA) and the Malmquist-Luenberger productivity index—to estimate technical efficiency (CRSTE) and pure technical efficiency (VRSTE). Then, truncated regression is employed to evaluate how climate risk affects bank efficiency measures. The findings indicate that climate risk significantly impairs bank efficiency. However, the study also uncovers a mitigating effect—banks that utilize financial derivatives, whether for hedging or trading purposes, are better positioned to buffer against this efficiency loss. Moreover, proactive engagement in carbon disclosure, particularly through the Carbon Disclosure Project (CDP) reporting, further alleviates the adverse effects of climate risk. Notably, banks with high ESG performance and transparent reporting practices achieve higher efficiency and demonstrate greater resilience to climate-related shocks. These results offer new theoretical and empirical insights into how banks can integrate climate risk management tools into efficiency strategies. Our findings provide practical insights for financial regulators, bank leaders, and policymakers focused on enhancing resilience against rising climate risks.

Keywords: Climate Risk, Bank Efficiency, Financial Derivatives, CDP Disclosure, ESG Performance, DEA-Malmquist, Truncated Regression