A new report from the UN Environment Finance Initiative (UNEP FI) working group, a collaboration among sixteen international financial institutions, proposes a methodology to increase banks’ understanding of how climate change and climate action could impact financial risk assessment.

UNEP FI commissioned Oliver Wyman, the international consulting firm, to produce the report, Extending Our Horizons. The report is part one of a two-part initiative and examines risks and opportunities in the transition to a global low-carbon economy. Earlier this month, the Canadian Securities Administrators (CSA) released a report on climate change-related risk disclosure, which described water availability and quality as prime indicators of physical risk.

“Many of the environmental challenges that the world faces today, especially climate change, can be traced back to one fundamental root cause: short-termism. Financial markets can become a catalyst for action on sustainability, but for that they need to become more long-term oriented,” said Erik Solheim, Head of UN Environment. “The beauty of the TCFD framework is that it encourages organizations to consider and disclose long-term impacts. This change in perspective is what we need to achieve sustainable development. That’s why as UN Environment we are excited to be working with such committed leaders in the finance industry.”

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Understanding how climate change and climate action impact the banking sector is fundamental in providing tools to the institutions to increase transparency about their exposure to climate-related risks and opportunities in line with the Task Force on Climate-related Financial Disclosures (TCFD). It will also inform banks’ strategies to contribute to and benefit from the low-carbon economic transition and help them engage and support their customers. This is key because the climate-related risks and opportunities that banks face arise primarily from their services to clients.

“RBC believes climate change is one of the most pressing issues of our time and we have an important role to play in supporting the transition to a low carbon economy,” said David McKay, president and CEO, of RBC, a member of the UNEP FI working group. “We are committed to advancing best practices in climate-related disclosures, assessing climate-related risks and opportunities, and supporting our clients in doing the same.”

The methodology provides the first publicly available guidance designed specifically for banks to carry out forward-looking, climate-related risk and opportunity assessments as envisioned by the TCFD. The second part of the reporting will focus on physical risk.

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