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Banks deal with climate-related risks

Hardy Graupner
April 26, 2018

Together with scientists, a group of 16 banks from all over the world has developed an innovative technology that will help lenders better manage the financial risks involved in the transition to a low-carbon economy.

Coal-fired power plant next to roof with solar panels
Image: Getty Images/L. Schulze

Sixteen leading banks from four continents on Thursday published a jointly developed methodology to increase lenders' understanding of how climate change and climate action could impact their business.

Among the banks piloting the project have been ANZ, Barclays, Santander, Rabobank and UBS. They have been supported by scientists from the International Institute for Applied Systems Analysis (IIASA) and the Potsdam Institute for Climate Impact Research (PIK).

The group of banks convened by the UN Environment Finance Initiative (UNEP FI) argued that lenders needed to be more transparent about their exposure to climate-related risks and opportunities.

"Anticipating how the transition to a lower-carbon economy could impact our portfolio will help us better advise our customers," said Jon Whitehouse, head of Government Relations & Citizenship at Barclays.

Climate-saving efforts need businesses on board

Getting clients on board

The new methodology and supporting materials would not only help banks contribute to and benefit from the transition to a greener economy, but would also help them engage their clients to that effect, the banks emphasized.

The initiative has brought together various areas of activity within the lenders including credit risk, stress testing, and sustainability and business development.

Erik Solheim, head of UN Environment, said "the beauty of [the initiative] is that it encourages organizations to consider long-term impacts," adding that the change in perspective "is what we need to achieve sustainable development."

"While we're still in the early stage of testing this approach, we expect it will be a useful framework to inform our ongoing discussions with customers regarding climate-related risks and opportunities," ANZ Chief Risk Officer Kevin Corbally commented.