Banks and insurance companies have been scaling up their climate risk management programs, but risk managers must be placed at the heart of efforts to add value and tackle financial risks posed by extreme weather or environmental regulations.
That is the finding of Global Association of Risk Professionals (GARP), in its global survey A Good Start but More Work to Do.
The study found more than 80% of institutions have already identified climate-related risks and opportunities. Furthermore, to facilitate the transition to a low-carbon economy, 60% have introduced new offerings such as green bonds, while 40% have modified existing products.
“Financial institutions’ treatment of climate risk has changed dramatically over the past five years,” GARP Research Institute co-president Jo Paisley said. “Whereas they used to view climate change largely as a reputational risk, banks and other firms are now treating it as a financial risk and are formally integrating it into their risk management frameworks.
“As a sign of this progress, 26% of respondents now have a dedicated climate risk function.”
However, the survey shows firms’ uneven progress in developing core climate risk management capabilities such as governance, disclosure and scenario analysis. Despite some respondents already having mature climate risk management frameworks, a few have only just started the process. Of those who were in the bottom quartile, nearly half described their climate risk approach as “strategic” or “comprehensive.”
Without tangible experience, these firms likely “don’t yet know what they don’t know,” and will be more realistic in their self-assessment as their knowledge base increases, Paisley added.
The A Good Start but More Work to Do survey included 27 major institutions with collective assets of approximately $20 trillion.