Financial institutions have work to do in managing climate risks: survey

Large global financial institutions are focusing more on risks from climate change, a report from the Global Association of Risk Professionals (GARP) says, but efforts to manage those risks are still in their infancy.

GARP surveyed 27 financial institutions whose assets total approximately $20 trillion to see how they’re incorporating the climate risk reporting developed through the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures.

The survey covered:

• governance and strategy to deal with climate-related risks;
• the approach to managing these risks;
• metrics, targets and limits used to assess and manage climate-related risks and opportunities;
• the use of scenario analysis to understand the risks; and
• disclosures of climate-related risks.

Most firms have board-level oversight of climate risks and have incorporated those risks into their strategy, the survey found. However, disclosures and scenario analysis—a valuable tool for assessing and developing strategies for climate risk—are lacking.

“While most firms have climate risk metrics for both operations and asset/liability management, they don’t yet have targets for the greenhouse gas emissions of their counter-parties, clients or assets under management,” the report said.

Four in five firms (80%) have identified risks and opportunities from climate change, including those related to product offerings: 60% have introduced new products in response to climate-related risks, the survey found, and 40% have changed existing products.

The institutions surveyed are at different levels of maturity in assessing climate risk, the report said, and their self-assessments are inconsistent.

“Given mounting regulatory scrutiny and the increased focus on disclosures, it is likely that firms will need to start paying greater attention to this area,” it said.

Read the full GARP report here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.