To a broad and ever-deepening collection of observers the global financial landscape appears to be at an inflection point. The risks are many and diverse: fluctuating trade tensions, social inequality, the ascension of China, a tenuous Western Alliance, and ever-evolving cyber security threats are just several and are listed in no particular order. However, one risk in particular—climate change—while by no means a new topic, presents challenges that many financial services companies have not fully grasped or planned for.
Indeed, according to the World Economic Forum Global Risks Perception Survey 2019-2020, “’Failure of climate change mitigation and adaption’ is the number one risk by impact and number two by likelihood over the next 10 years.”
In this report we examine global proposals around climate-related reporting disclosures and stress-testing scenarios, and outline how organizations can effectively leverage this thinking to produce viable, growth-oriented outcomes. This is not a deep dive into the critical and highly relevant environmental, social, and governance (ESG) topic—although ESG is the lens through which financial services firms will measure much of this work going forward—but we introduce these concepts to lay the foundation for existing plans.
Our core focus is on the financial and operational risks to financial institutions (i.e. banking, capital markets, insurance) as a direct result of climate change, particularly monitoring, analysis and reporting of those risks. From an operational perspective, we believe CROs, CFOs, CIOs and their teams will find this information illuminating and actionable.
The contributors to this report hail from broad backgrounds and offer key insights and experiences, including ESG, credit and regulatory risk, and compliance. This work also features insights from the insurance sector, specifically our Actuarial practice, where measurement of the increasing impact of extreme weather events has long been an area of emphasis.