The paper subscribes to the broad strand of literature that examines the interplay between banking activity and climate risk, by particularly focusing on identifying and classifying European Union countries into similar, homogenous groups based on their intrinsic pattern related to climate vulnerability and readiness to cope with the negative effects of natural disasters. By applying an unsupervised learning clustering algorithm on a novel input dataset comprising six proxy indicators for the physical risk associated with climate challenges, we reveal the climate profile of the EU countries. A direct implication of our findings consists of ascertaining which banking systems are more exposed to environmental risks arising from physical sources in the home country they headquarter or in the host countries envisaged for the conduct of transnational financial activity. Results indicate that the least vulnerable EU countries to physical risks, being at the same time best performers in the process of climate risk adaptation, prevention, and management are Denmark, Luxembourg, Germany, Sweden, and Finland. Hence, their banking systems are less exposed to the adverse consequences of the physical risks. In contrast, banks operating in Bulgaria, Croatia, Poland, and Romania are the most exposed to the ripple effects of these risks, due to countries’ increased vulnerability to climate risk and to the low degree of performance in implementing climate policies.