Author: PriceHubble – pricehubble.com
Over the last three years, Environmental, Social, and Governance (ESG) topics have grown in importance within banks worldwide. This growth in relevance has impacted all departments, from business to compliance to risk. The impact has been so great that ESG has become one of the top strategic priorities.
In April 2019, the Prudential Regulation Authority (PRA) released a supervisory statement highlighting how the regulator expects financial institutions in the UK to tackle climate related challenges.
According to PwC, “The PRA wants to see the firms it supervises take a strategic, holistic and long-term approach, considering how climate-related risks might impact all aspects of the risk profile.”
Similarly, in 2020, the European Banking Authority (EBA) released guidelines that urged financial institutions to integrate climate-related and environmental risks into their internal risk models. The concrete impact this will have on business operations within banks is still to be determined. However, the role risk teams will play is clear –– they will be central in transforming traditional risk approaches to integrate emerging risks.
According to a study conducted by EY in 2021, 91% of CROs think that climate is the most important emerging risk, and this will only accelerate over the next five years. However, acknowledging the importance of climate risks is only the first step of a long journey.
