Countdown to Climate Risk
THIS YEAR, A QUIET BUT POTENTIALLY PROFOUND AND FAR-REACHING REVOLUTION, ACROSS FINANCIAL SERVICES AND THE WIDER ECONOMY IS UNDERWAY.
From speaking to clients from Banking, Insurance, Asset Management to Fintechs, this is something that sits on everyone's agenda, albeit with different levels of regulatory pressures depending on the size of the organisation. However, over time, and we're talking short term rather than the long term, this will become a critical thought on how your business runs, invests, and also to some degree attracts the best talent.
A GREEN ECONOMY
In the midst of the pandemic, you could be forgiven for missing it - but the sea change came in November 2020 when the UK chancellor, Rishi Sunak, announced the Government’s Green Finance Strategy.
A central plank of the strategy is the UK government’s commitment to make climate risk disclosures mandatory across organisations by 2025. And with this mandate, to effect change in processes and investment - towards a green economy. As Mark Carney has said: “Climate change is a tragedy on the horizon” which, if ignored, could leave companies with worthless assets.
FULL COMPLIANCE BY 2025
The road map from The Task Force on Climate-related Financial Disclosures (TCFD) details the anticipated rollout across markets and the timescales involved.
It is very precise across seven key organisation groups and, in summary, is indicating that it expects up to 100% reporting by 2023 from listed commercial companies, banks and building societies, insurance companies, asset managers, life insurers and FCA-regulated pension schemes with all seven groups expected to reach full compliance by 2025.
Climate risk, broadly defined as physical and transitional, is broken down into four pillars of recommended disclosure:
Governance – disclosing organisations’ governance and climate-related risks and opportunities
Strategy – disclosing actual and potential impacts of climate-related risks and opportunities on organisations’ businesses, strategy and financial planning
Risk management - disclosing processes used by organisations to identify, assess and manage climate-related risks
Metrics and targets – disclosing metrics and targets used to assess and manage relevant climate-related risks and opportunities
Strategy input at board level, internal restructuring, new skillsets in new roles, data collection and analysis: it’s a big ask.
AND THAT’S ONLY A SAMPLE OF WHAT MAY BE REQUIRED.
Last June, the Climate Financial Risk Forum set up by PRA and FCA published its first guide “to facilitate and accelerate a shared approach to the understanding and mitigation of the financial risks, and capture the opportunities, posed by climate change.” This year, the Bank of England’s Biennial Exploratory Scenario (BES) will focus on the financial risks of climate change to “test the resilience of the current business models of the largest banks, insurers and the financial system to climate-related risks and therefore the scale of adjustment that will need to be undertaken in coming decades for the system to remain resilient”.
The UK government has said its climate change strategy is world-leading. Elsewhere, the European Banking Authority is building regulatory and supervisory standards across environmental, social, and governance (ESG) risks and, in the US, firms are increasingly focused on the ESG agenda.
Globally, the TCFD supports international co-operation and shared harmonisation of standards and back the International Financial Reporting Standards (IFRS) Foundation’s proposal to create a new, global Sustainability Standards Board.
SO, JUST WHAT DOES THE FUTURE HOLD?
Join us, on January 28, to ask questions, hear answers – to discuss the issues and implications of the climate risk road ahead.
Register at our Meetup page and I look forward to seeing you all there.
Broadgate is part of Trinnovo Group. Our mission is to build diversity, create inclusion and encourage workplace innovation.