
Integrating climate risk into risk management frameworks

One of the most promising news stories to come out of negotiations at the 2021 UN Climate Change Conference, COP26, was the announcement that the Glasgow Financial Alliance for Net Zero now has $130 trillion committed to combatting climate change. Additionally, its 450 members – which include banks, insurers and investors – have pledged to become net zero by 2050 at the latest. Firms have agreed to report their progress and their financed emissions annually.
This commitment means the private sector could deliver around 70% of total investments needed to meet net-zero goals, according to analysis conducted for the UN High Level Climate Action Champions.
As these financial firms begin to transfer lending and investment from carbon-intensive to carbon-neutral firms and clean technologies, more sectors and financial firms will begin to feel the effects. In a Risk.net crowd-sourced scenario-generation exercise, it was revealed that people expect rising carbon prices to have a big impact on just about every sector, financial index and investment.
However, even though measuring and mitigating climate risk has become a priority at many financial firms, the discipline is still nascent and poses huge challenges. Modelling climate risk exposures within a portfolio is beset with hurdles. These are discussed in Matthew Lightwood’s article, Applying scenario analysis to climate risk.
While firms are working towards producing their own robust transition plans, many want greater input and clarity from regulators. For example, some banks are calling for regulation to define and set standards for transition lending – loans that intend to aid the transition to a low-carbon economy.
As banks work on integrating climate risk into their risk management frameworks, a debate is currently in full swing around whether climate risk can fit into existing credit risk weights, and how it should be treated when it comes to capital rules. This report explores the credit risk weighting and capital rules issues.
The report also includes a roundtable in Q&A format in which three experts discuss a range of issues from disclosure to climate stress-testing, and from carbon markets to climate metrics, providing insight into how they see these crucial issues developing.
Of course, the price of carbon will play a pivotal role in driving green investment, but currently gas and coal prices also jump to the tune of their own fundamental influences, such as weather, supply and demand, and storage availability. This has been very evident in Europe and the UK in recent months, where soaring gas prices have made coal more economical. An analysis of this situation also features in this report.
Finally, the 2021 Climate risk special report explores some important issues facing investors, asking whether some environmental, social and governance-type investments have inflated values and whether European Union rules could be encouraging greenwashing.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Climate
Complying with climate risk framework standards for streamlined processes
Financial institutions worldwide are actively studying ways they can integrate climate risk management into their more traditional risk frameworks
Banks and financial powerhouses map out climate risks
A day after the hottest Double Ninth Festival on record in Hong Kong, experts gathered at Asia Risk Live at the Ritz-Carlton to explore how banks can manage climate risk for a net-zero economy
ESG and climate risk: special report 2022
This Risk.net Environmental, social and governance (ESG) and climate risk special report brings together a collection of articles that explore the latest issues in assessing and managing ESG and climate risk. The tide is turning, with many more firms now…
Sustainable finance, Ibor transition and China bond investment take centre stage
Sustainable finance, moving to risk-free rates, and the further liberalisation of China’s capital markets will all remain a focus for Crédit Agricole CIB in Asia-Pacific
ESG strategies: special report 2021
This Risk.net special report comprises a series of articles that reflect on the latest initiatives for consistent standardised global frameworks for measuring ESG, consider the methodologies investors are using to make measurable progress for people and…
ESG strategy, investment and risk
Sponsored Q&A
Climate risk takes scenario analysis and stress-testing to the next level
Financial institutions are facing several challenges as they prepare for the transition risk journey that will see them evaluating their existing risk and finance solutions. Ludwig Dickens, client advisor, risk business consulting, at SAS discusses what…
Did COP26 deliver?
Jaspreet Duhra, S&P Dow Jones Indices (S&P DJI), explores the opportunities that came out of the 2021 UN Climate Change Conference in Glasgow, and why S&P DJI will continue to produce rules-based indices that align with a 1.5° Celsius scenario