Private Banking: A Wealth of Opportunity?
The multiple unknowns within climate change and the global response to it present a range of problems for financial institutions in terms of their growth strategies, risk management and brand positioning.
In general, the high mobility of capital and risk assessment expertise possessed by financial institutions position the industry well to respond to the volatilities that may come about, but leaders and managers will need to take steps to anticipate and address the changing business environment of the future.
Unforeseen levels of credit default and asset value decline as a result of carbon constraints represent significant risks in the short-to medium term, but they are countered by growing opportunities in infrastructure and clean energy financing, new commodities trading, and new hedging requirements.
However, the possible drag on economic output from global temperature rises and a widespread commitment to greenhouse gas abatement measures will gradually outstrip the opportunities, and could cost the industry up to $530 BN in lost revenues by 2030.
Corporate and institutional banking and asset management may see the strongest upsides from climate change over the next 20 years, while the insurance sector faces the greatest threats, and could suffer up to $150 BN of annual losses from extreme weather events by 2030. The retail market for “green” banking products is currently tiny, but “green” issues could increasingly influence consumer choice of service provider over time.
For many firms climate change remains below the strategic radar, although some of the largest institutions have put in place measures that cover their strategic positioning, product development, operational processes, and stakeholder relations.
As an immediate priority financial institutions should stress-test their portfolios, strengthen their green credentials, and develop new products to anticipate changing customer demand.
