Extending Our Horizons

Guiding banks through climate-related impacts

Global banks need to come to grips with the potential disruption from climate change as investors, regulators, employees and consumers seek greater clarity and transparency on the issue.

To this end, the United Nations Environment Programme Finance Initiative (UNEP-FI) convened a working group of 16 global banks to create a methodology that financial institutions might leverage to assess risks and opportunities associated with rising global temperatures and reduced reliance on fossil fuels.

Through this highly collaborative effort, we have set forth an innovative methodology that will serve to underpin enhanced climate-risk decision making and resource allocation
John Colas, Partner and Vice Chairman, Financial Services Americas

Management consultancies Oliver Wyman and Mercer as well as climate scientists and other experts were mandated to respond to the ground-breaking recommendations from the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD). Published in 2017, the TCFD report called for voluntary disclosure by financial institutions and other corporations of “actual and potential” impacts associated with climate change using scenario analysis.

We combine leading climate and economic modeling, credit stress-testing approaches, and traditional credit analysis into a much more fit-for-purpose tool for climate-scenario analysis
Ilya Khaykin, Partner, Financial Services

The publication of this new approach to climate-related disclosure by the working group is a first, but critical step, in incorporating the task force’s guidance into bank risk management and dealing with the increasingly urgent need to confront the climate challenge. The initial report focuses on the risks and opportunities associated with the anticipated transition to a low-carbon economy—a consequence of efforts to reduce Earth’s rising temperature.

A second report is expected out later this summer that will deal with the physical impacts of climate change on industry and will be developed by climate consultancy Acclimatise.

Increasing climate-risk awareness within the financial services industry will ultimately generate broad-based benefits for the economy and society as a whole
Alban Pyanet, Principal, Financial Services

The financial institutions that are leading this work and that are currently piloting the methodology are ANZ, Barclays, BBVA, BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Societe Generale, Standard Chartered, TD Bank Group and UBS. Also participating were scientists from the International Institute for Applied Systems Analysis and the Potsdam Institute for Climate Impact Research.

See the UN press release here.

Extending Our Horizons