Banks and other financial institutions are focusing more on climate-risk management but several barriers remain, according to a survey by the Global Association of Risk Professionals.
GARP found that 90% of firms have board-level governance of climate-related risks and opportunities, up from 81% in 2019, but only 30% consider their strategies to be resilient against climate change for more than five years.
GARP's second annual Global Benchmarking Survey, released Tuesday, included 71 leading banks, asset managers, insurers and other firms with a total market capitalization of $3.8 trillion.
The biggest short-term barrier for them is the lack of reliable models for climate risk, followed by regulatory uncertainty. Most respondents consider climate risk to be improperly priced or even omitted, due to the complexity of climate-change forecasting and the lack of reliable climate risk data.
Just 14% of the firms use scenario analysis regularly to develop climate-change strategies, and only 54% of the ones using it acted on that analysis, the survey found. Only 7% of the firms have a dedicated team for managing climate risk, while 76% have introduced new products or services because of climate change; the same proportion plan to change or launch new ones.
Respondents expected climate-related opportunities to have a more significant impact on strategy than the risks in the next five years. "Firms are evolving their climate-risk management capabilities as they are concerned about the long-term resilience of their business strategies to climate change," GARP Risk Institute co-president Jo Paisley said in a statement.
The survey, Mapping Out the Continuing Journey, focused on key themes of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures and used an enhanced maturity model to score the firms' climate risk capabilities in six areas: governance; strategy; risk management; use of metrics, targets and limits; use of scenario analysis; and climate-risk disclosures.
