A Stressing Climate? Key Challenges For Banks In Assessing And Disclosing Climate Change Risk

Companies in all sectors, including those in the financial-services industry, are being asked the same question: What are the implications of climate change risks and opportunities for your organization’s financial performance? Investors, regulators, consumers, suppliers, and employees are looking for greater clarity and transparency on this issue. At this stage, however, there’s no established best practice for assessing the impact of climate change on bank performance. This topic has not escaped the focus of central bankers, specifically Financial Stability Board (FSB) Chair and Bank of England Governor Mark Carney, who has written and spoken extensively on climate change risk. The recent release of a disclosure framework aims to facilitate the process; yet companies—particularly financial institutions— face a number of challenges in implementing the recommendations.

The FSB Task Force on Climate-related Financial Disclosures (TCFD), issued a set of recommendations in June 2017, providing a framework and approach for all companies to report on climate impacts in their mainstream financial filings. The disclosures, which are meant to be voluntary, consistent, comparable, reliable, and clear, should aim to provide material information to lenders, insurers, investors, and other stakeholders. This disclosure of the financial impact of climate-related risks will push institutions to enhance how these risks are assessed, priced, and managed. To that end, banks and financial institutions are particularly encouraged to adopt the recommendations.

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This article was first published on on December 12, 2017.

Jane Ambachtsheer is a Paris-based partner at Mercer Investments and a member of the Financial Stability Board Task Force on Climate-related Financial Disclosures. John Colas and Ilya Khaykin are New York‑based partners and Alban Pyanet is a New York‑based principal at Oliver Wyman.

A Stressing Climate? Key Challenges For Banks In Assessing And Disclosing Climate Change Risk