Climate risksHelping banking industry address climate-related risks, opportunities

Sixteen leading banks from four continents, convened by the UN Environment Finance Initiative (UNEP FI), have published a jointly developed methodology to increase banks’ understanding of how climate change and climate action could impact their business.

This understanding is fundamental to enable banks to be more transparent about their exposure to climate-related risks and opportunities in line with the TCFD. It will also inform banks’ strategies to contribute to and benefit from the low-carbon economic transition and help them engage and support their customers to that effect. This is key because the climate-related risks and opportunities that banks face arise primarily from their services to clients.

The methodology and supporting materials are the first output of a unique and collaborative process over the past ten months. It has brought together various functions from within the banks including credit risk, stress testing, sustainability and business development with leading scientists, and risk and investment management experts.

IIASA says that the banks that are leading this work and that are currently piloting the methodology are ANZ, Barclays, BBVA, BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank Group and UBS. They were guided by the consultancies Oliver Wyman, Mercer, and Acclimatise and supported by scientists from the International Institute for Applied Systems Analysis (IIASA) and the Potsdam Institute for Climate Impact Research (PIK).

“Many of the environmental challenges that the world faces today, especially climate change, can be traced back to one fundamental root cause: short-termism. Financial markets can become a catalyst for action on sustainability, but for that they need to become more long-term oriented,” said Erik Solheim, Head of UN Environment. “The beauty of the TCFD framework is that it encourages organizations to consider and disclose long-term impacts. This change in perspective is what we need to achieve sustainable development. That’s why as UN Environment we are excited to be working with such committed leaders in the finance industry.”

The methodology provides the first publicly available guidance designed specifically for banks to carry out forward-looking, climate-related risk and opportunity assessments as envisioned by the TCFD. More specifically, the methodology helps banks to apply the state-of-the-art global climate change scenarios that are available today - such as those developed and offered by PIK, IIASA, and the International Energy Agency (IEA) - to evaluate the risks and opportunities that the low-carbon economic transition may