Risk Management Partners
How to reduce Risks of Climate Change as a Bank
© Thomas M. Barwick INC

How to reduce Risks of Climate Change as a Bank

Risk assessment and risk management for banking

The European Central Bank (ECB) has published the report of the climate risk stress test result. This report shows that banks must urgently focus on risks caused by climate change. Despite of some progress since 2020, banks are still far from meeting the   supervisory expectations of ECB.    

Source: ECB

The scope and technical sophistication of our Location Risk Intelligence Platform provides the most comprehensive risk management solution for analysing the financial impact of physical events resulting from natural disasters and climate change.    

It allows you to forecast how a portfolio of assets may be financially impacted by climate change risks and natural hazards. What variety of risks it will be exposed to, together with the location and concentration of these risks, and how these risks may change over time under different CO2 emission scenarios.

Four main drivers to assess the financial impact of climate change risks:

Shifting away from voluntary TCFD reporting, there is an increasing pressure for banks to strengthen their climate disclosure with mandatory addendum (e.g. EBA pillar 3 reporting, IFRS S2)
Clear expectations from regulators to incorporate Climate risk into existing stress testing framework (including through active participation in periodic regulatory climate stress tests) as well as Credit Risk models.
Climate change risks are business risks. Consider both your current portfolio and at the point of origination
Pressure from customers, investors, press, public image and social pressure
210bn US$ losses in 2020 alone
Climate change risks are already seriously affecting the finance industry
Euro area banks must urgently step up efforts to measure and manage climate risk, closing the current data gaps and adopting good practices that are already present in the sector.
Andrea Enria
Chair of the ECB’s Supervisory Board
Source: ECB

Webinar recording: How to bring physical climate risk into your loan origination process! In the webinar, our experts will highlight the importance of considering physical climate risks when making lending decisions.

How you benefit as a manager in the finance industry

Clearly define your climate change risk appetite
With the easy-to-use analysis tool for single locations, a portfolio or multiple portfolios you can optimise your investment by evaluating your risk profile based on climate change risks and the financial impact.

Quantify your risk appetite better, because you can identify and visualise risk hotspots.
Meet all regulatory requirements with minimal effort
Assessing, managing and disclosing the financial risks associated with climate change. Providing financial reporting and transparency of risks to shareholders and regulators.

Build your TCFD report for physical climate change risks.
Identify the financial impact of climate change risks
Climate change risk identification is a key component in the long-term financing of infrastructure and industrial projects.

Evaluate the financial impact of the climate change risks of your infrastructure projects as part of the due-diligence process, enabling you to take informed decisions for debt or equity investments.
standard chartered
We are pleased to collaborate with Munich Re for climate-related physical risk assessments. Such exchange of knowledge and ideas between the banking and insurance sectors is a prime example of how industries can work together to combat climate change and financial risks arising from it.
Mark Smith
Group Chief Risk Officer
Standard Chartered

Our Solution Offering at a Glance

Screen Climate
© Munich Re
  • Covers a comprehensive set of 12 current and 7 future climate hazards for physical climate change risk identification that includes tropical cyclone, river flood, sea level rise, precipitation, drought, fire weather stress and heat stress
  • Financial Impact Score included
  • Future climate hazards are built on IPCC’s proposed RCP scenarios (2.6, 4.5 and 8.5)
  • Time horizons - (current scenario, 2030, 2050, 2100 and further shorter ones planned)
  • Scoring system is designed to generate scores as index (0-10) as well as a traffic light approach (low, medium, high etc.)
  • Single location, portfolio and multiple portfolio analysis functionalities
  • High resolution of up to 30m for individual risk types
  • API and log-on versions available for different use cases
  • The web version of the solution is built on GIS and is used for detail visualization purposes to assess climate and natural hazard risk

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