Climate change poses a threat to financial stability and the safety and soundness of global financial firms. In light of the growing regulatory environment, banks are now encouraged to actively embed climate-related risks in their business operations and risk management frameworks. While many are doing just that, recent research by Mazars found that the effort and process remain inconsistent.
Governance
The report finds that 77% of banks analyzed have climate-related risks reviewed by the board of directors through their sub-committees; 43% have launched cross-functional working groups on climate change and Task Force on Climate-related Financial Disclosures (TCFD) reporting.
The main organizational models observed in banks to address climate-related risks and opportunities are:
- CSR teams at central level
- Cross-functional teams (sustainability, risk and business lines)
Risk management
The report finds that nearly all sampled banks recognize the materiality of climate-related risks – both physical and transition. However, their main focus is currently measuring the impact of transition risks on credit risk. Methodologies to assess physical risks appear to be at an earlier stage, notably due to a lack of both asset-level data on borrowers and spatial analysis skills within banks. Read more…
