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Monday, September 20, 2021

Climate Risk Management Brought To The Finance Industry

Banks, asset managers and insurers have been scaling up their climate risk management programs. Mostly to address the financial risks posed by extreme weather or environmental regulations. According to a new global survey conducted by the Global Association of Risk Professionals (GARP). The survey includes 27 major institutions with collective assets of approximately $20 trillion.

Among the participating firms, climate change has emerged as a significant area of focus. With more than 80% of institutions already having identified climate-related risks and opportunities. Further, to facilitate the transition to a low-carbon economy, 60% have introduced new offerings such as green bonds, while 40% have modified existing products.

“Financial institutions’ treatment of climate risk changed dramatically over the past five years,” says Paisley, Co-President of GARP Research Institute. “Whereas before, they used to view climate change largely as a reputational risk. Banks and other firms are now treating it as a financial risk and are formally integrating it into their risk management frameworks. As a sign of this progress, 26% of respondents now have a dedicated climate risk function.”

However, the survey shows firms’ uneven progress in developing core climate risk management capabilities such as governance, disclosures and scenario analysis. Although some respondents already have mature climate risk management frameworks, others have only just started the process.

Of those who were in the bottom quartile, half described their climate risk approach as “strategic” or “comprehensive.” Paisley says that without having tangible experience, these firms likely “don’t yet know what they don’t know,” and will be more realistic in their self-assessment as their knowledge base increases.

About the Global Association of Risk Professionals

The Global Association of Risk Professionals (GARP) is a non-partisan, not-for-profit membership organization.

Ivy Heffernan
Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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