Are banks prepared to manage climate change related risks?

Acin, a SaaS company pioneering the global standard for operational risk controls, has published a barometer charting the preparedness of the world’s leading banks and asset managers to meet upcoming challenges in managing climate change-related risks. 

UK and European regulators expect organisations to embed climate risk into their financial risk management frameworks by Jan 2022. Independent research commissioned by Acin, produced from an analysis of their annual and, where available, sustainability and climate reports, reveals that much remains to be done in terms of practical implementation.

Positive signs in moving towards climate frameworks 

An encouraging sign which was discovered was that the financial institutions analysed display a clear acknowledgment of the need to meet and address the risks posed by climate change. 67% of firms referenced a corporate net-zero target between 2025-50 in their reports. 14% of these organisations have gone further by setting a commitment to reach their net-zero targets by 2035, 15 years in advance of the global deadline set by the Paris Agreement.

It was found that many of the financial institutions are capturing, publishing, and acting on climate-related data today, as well as preparing for future impact of risks. 81% of these publish detailed data on the impact of their own operations (business premises, air travel, etc.). And 60% of firms already conduct some form of planning to prepare for the impacts of chronic climate risk.

Organisations are also appointing or implementing new structures to enhance efforts to address climate change-related risk. 40% of firms reference a dedicated individual, team, or task force to focus on climate change-related risk in their latest reports. 

Making the next step 

It was clear from the research, that although there are positives, there is still a long way to go. In general, firms are publishing limited data on the impact of their activities beyond the carbon footprint of their own operations, suggesting that they are not able to measure progress adequately at this stage or are unwilling to make numbers publicly known.

For instance, data reporting around climate risk is still immature, with less than one-fifth (19%) of firms including detailed information within their reports. Less than one fifth (14%) of the organisations publish extensive (3 years) current and historic data on client (or investee) emissions in their reports. 

Most firms make some reference to embedding climate risk within their risk management process. However, when it comes to implementation, progress is varied, with only 37% of firms referencing a mature approach to climate risk management, and nearly half (48%) intending to develop their framework in the future.

Paul Ford, CEO at Acin, said: “It is encouraging to see evidence of banks and asset managers responding to climate change. That said, the research clearly indicates some tough work ahead. Commitments are an essential first step, but we know from experience that embedding risks and controls in an organisation is challenging. Climate risk is an emerging discipline where roles and responsibilities may not yet be fully defined, and the nature of the risks transcend financial and non-financial.”