CREATING A SUSTAINABLE INFRASTRUCTURE FOR CLIMATE RISK ANALYTICS
R&C: Could you provide an overview of some of the ways financial institutions (FIs) are currently reacting to climate risk?
Siddiqi: There is a wide spectrum of reactions, ranging from being aware to proactive actions. Most banks are aware, at least at board level. After that, we see banks that are trying to understand ways in which climate risk might impact them as an institution, and how they need to react to issues such as setting risk appetites, governance, compliance, and policy and strategy, among other things. On the other side, there are also banks that are undertaking projects to identify exposures to climate risk and preparing to disclose them as required by some national regulators. At the leading edge, there are a few banks that have either completed a proof of concept or are using climate risk factors in their lending and investment decisions, for example via models that link climate factors to probabilities of default.
Plochan: How FIs react to climate risk depends on the region, political and regulatory climate, the size and profile of the bank and also on the attitude and opinion of senior leadership toward the topic. Some banks are looking to aggressively cut down their carbon footprint and become net zero on their financed loan and asset portfolios by 2050. On the other side of the spectrum, smaller banks consider climate risk to be an important topic, replacing plastic cups with paper cups at coffee machines.
Apr-Jun 2021 Issue
SAS Institute Inc.