Sixteen banks from four continents, among them the Brazilians Itaú Unibanco and Bradesco, joined the UN Environment Finance Initiative in developing a methodology designed to increase financial institutions' understanding of the impact of climate change and climate action on their businesses.
This understanding is critical to allow banks to be more transparent about their exposure to climate-related risks and opportunities, in line with the Task Force on Climate-Related Financial Disclosures (TCFD, in the acronym in english).
It will also help banks' strategies to benefit from the transition to a low-carbon economy and their engagement with clients accordingly.. According to the UN Environment, this point is essential as climate-related risks and opportunities arise in the financial sector, particularly in customer services.
The methodology and supporting materials are the first product of a collaboration process promoted in the last ten months. The initiative brought together different areas of financial institutions, including credit risk, stress tests, sustainability and business development, with scientists and specialists in risk and investment management.
Engaged banks
In addition to Itaú Unibanco and Bradesco, the banks that are leading the work and adopting the methodology are ANZ, Barclays, BBVA, BNP Paribas, Citi, DNB, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Societe Generale, Standard Chartered, TD Bank Group e UBS.
They are guided by Oliver Wyman consultants, Mercer e Acclimatise, and supported by scientists from the International Institute for Applied Systems Analysis (IIASA) and the Potsdam Institute for Climate Impact Research (COCK).
environmental challenges
“Many environmental challenges facing the world today, especially climate change, can be attributed to a fundamental cause.: short term thinking. Financial markets can become a catalyst for action for sustainability, but, for that, need to be more long-term oriented", these Erik Solheim, head of UN Environment.
“The beauty of the guidelines is to encourage organizations to consider and disclose long-term impacts. We need this change of perspective to achieve sustainable development. That's why, as UN Environment, we are glad to be working with such committed leaders in the financial industry.”
Risks and opportunities
The methodology provides the first publicly available guidance designed specifically for banks to conduct forward-looking assessments of climate-related risks and opportunities, as provided by TCFD. More specifically, the methodology helps banks apply the most advanced global climate change scenarios available today — such as those developed by PIK, IIASA and International Energy Agency (OUCH) — to assess risks and opportunities that the low-carbon economic transition can present to your loan portfolios.
“When we published our recommendations less than a year ago, We were deliberate to see banks and other financial institutions not just consumers of climate-related information., but as preparers and issuers of such information", declared Christian Thimann, co-chair of the UN Finance Initiative Environment, Vice President of TCFD and Senior Executive of AXA Insurance.
Fundamental role
"We did this to emphasize the critical role that financial institutions will have to play both in safeguarding financial stability and in financing economic decarbonization", completed.
"This is easy to understand. The hard part is finding effective ways., but practical, of financial institutions to take such measures., carry out the necessary assessments and disseminate them in a meaningful way.. I am grateful for the contribution this group is making today to this end.”
The methodology was developed from the knowledge, risk assessment procedures and models already used by banks; and is intended to enable informed assessments of how exposures to risk — and potential new opportunities — might develop in the future, under various climate mitigation scenarios.
The initiative also allows institutions to examine risks and opportunities in a range of places and sectors., and provides long-term views that go beyond the two- or three-year stress test horizon..
Innovative methodology
According to the UN Environment, the progress made through the publication of these guidelines is critical.. “Through this highly collaborative effort by scientists, risk professionals and sustainability specialists, we have established an innovative methodology that will serve to support decision-making and resource allocation that are more aware of climate risks", said John Colas, partner and vice president of Oliver Wyman consulting.
"We hope this methodology will be further strengthened, as practices evolve and new, more granular data from industry professionals emerge, corporations, policy makers and climate scientists.”
best practices
Additional work is still needed across sectors and areas of expertise to develop best practices. Most publicly available scenarios are not intended for financial risk assessment. Gaskets, the scientific community and financial institutions could improve the granularity of the models and advance the generated financial risk variables.
The engagement of banks and borrowers is also important., so that enhanced borrower-level information becomes available. As well as the development of macroeconomic stress tests in financial institutions, climate assessments and projections will continue to improve over time.
The methodology will be available on the website www.unepfi.org/tcfd-for-banks.
Online seminars will be held at 5am and 11am (Brasilia time) in 15 May for those interested in learning more about the new methodology.
Among the speakers, are specialists in risk management and investment from Oliver Wyman consultancy, PIK and IIASA climate change scientists, that provided the base scenarios for the methodologies, and representatives of participating banks.
To register for the webminar, you must email Peter Cripps at the address /" target="_blank" rel="noopener">.
original content unitednations.org. – Sustainable cities and communities ODS 9, 13 e 17 or enter contact us for more information.