Banks and asset managers not yet prepared to meet climate risk deadlines

A barometer measuring the climate risk preparedness of the global banks and asset managers has found a lot still needs to be done in terms of practical implementation.

The barometer was published by Acin – a global firm focused on operational risk – and sought to examine whether banks and asset managers were ready to meet the upcoming challenges in managing climate change-related risks, as companies are required to embed climate risk into their financial risk management frameworks by January 2022.

While the barometer found that most companies have made progress, there were clear signs that that a lot more needs to be done in terms of concrete and practical implementation.

According to Acin, the barometer found that 67% of the financial institutions that were examined referenced a corporate net zero target between 2025-2050 in their reports, while up to 14% of these businesses had taken a step further by setting a commitment to reach their net zero targets by 2035.

Furthermore, 70% of banks and asset managers referenced alignment with the Task Force for Climate-Related Disclosures and its principles. Only a small 8% of firms made no reference at all to how they were aligning or were planning to align with the disclosures and its principles.

An overwhelming majority of financial institutions – 81% – said they were publishing detailed data on the climate-related impact of their operations such as business premises and air travel. Meanwhile, 60% of companies said they were conducting some form of planning to prepare for the impacts of chronic climate risk.

Alongside making regulatory commitments to climate change, the barometer found that many financial organisations were also employing extra staff to mitigate the challenge. Up to 40% of companies referenced a dedicated individual, team or taskforce to focus on climate change-related risk in their latest reports.

There is also work to be done by banks and asset managers around the area of data. According to Acin, data reporting around climate risk is still young, with only 19% of firms including detailed information within their reports, while 14% of these companies published extensive current and historic data on client or investee emissions in their reports.

Only 40% of businesses are currently publishing some data and/or reference plans to begin publishing data on client or investee emissions in the future. Despite this, 46% made no mention of client or investee emissions data – showcasing that more needs to be done before firms meet their regulatory obligations on managing climate risk.

While many companies in the barometer made reference to embedding climate risk in their risk management process, there wasn’t found to be much concrete follow-through– with only 37% of firms referencing a mature approach to climate risk management and 48% intending to develop a framework in the future.

Acin said, “What is clear from the research is that 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. This suggests that although they are preparing for the impact of climate-related risks, they are not able to measure progress adequately at this stage or unwilling to make numbers publicly known.”

Paul Ford, CEO at Acin, added: “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. Staying on top of what is clearly emerging regulation is not easy either.

“UK and European regulators expect to see climate risk embedded in 2022, if firms are to avoid capital adequacy implications. Acin’s peer network and platform, along with our initial inventory of climate risks and controls driven by the latest regulatory guidance, are helping firms meet these challenges.”

On the topic of what more banks and asset managers can do to hit net zero by 2050, Acin remarked, “A key ingredient for organisations to meet their net-zero targets is to ensure that risk management frameworks are developed to meet the challenge of tackling climate risk.

“The research commissioned by Acin highlights a mixed picture, with only just over a third of organizations referencing a mature approach to climate risk management. Successfully embedding climate risk into frameworks will help unlock invaluable data and insights, which in turn will accelerate the ability to manage and mitigate it effectively.”

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