According to leading regulators “climate change presents significant financial risks” and they demand banks to take actions accordingly. Regulatory exercises such as Climate stress tests, paired at the same time with the first Climate-related losses already hitting banks’ P&Ls around the world, are pushing Climate Risk Management to the forefront of agenda of banks’ risk management and strategy teams.
Compared to the “vanilla” or “classical” financial risks, managing climate, Physical and Transition risks require new data, new models, new approaches and longer time horizons impacting banks’ business strategies.
However, due to the lack of available data and capabilities, missing global harmonization and alignment on the methodologies and existing already very volatile economy and markets, lots of banks are still struggling to properly and efficiently address these new risks.
What are the key lessons learned so far and main 2023 attention points for Climate Risk Management?