14 February 2022: UNEP FI published a one-year review of the physical risk disclosure commitment.

The Global Commission on Adaptation estimates that $1.8 trillion in investment across five key areas of climate adaptation measures could generate $7.1 trillion in benefits up to 2030. In this light, the Commission launched a ‘Year of Action’ to scale up and accelerate adaptation action, including on financing, in September 2019, which concluded with the Climate Adaptation Summit 2021 on 25 January.

One of the key actions identified by the GCA and UNEP FI is to increase the number of financial institutions analysing, measuring and reporting their risks and opportunities from the physical impacts of climate change. Global financial institutions have clients and portfolios that cover all sectors of the economy and can therefore have a powerful influence on the way that investments are made and projects are financed. Responding to climate change impacts requires a systemic, risk-based approach to decision making. The recommendations of the Task Force on Climate-related Financial Disclosure (TCFD) provide a framework for this, but uptake has been voluntary and rather piecemeal.  The Governor of the Bank of England and former Chair of the Financial Stability Board, Mark Carney, stated in October 2019 that corporates need to road test risk disclosure mechanisms over the following two years before global regulators start to introduce disclosure mandates.

Call to Action

For this reason, UNEP FI and the GCA launched a statement at the Climate Adaptation Summit 2021, supported by leading financial institutions, delivering a call to action to:

Financial institutions:

  • Apply the recommendations of the TCFD, with robust risk assessment for physical risks, and more broadly on transition risks;
  • Mainstream the management of climate-related risk in business operations;
  • Build awareness within your firms of the threat that climate change poses to clients and build capacity to assess and respond to climate-related risks.

Finance sector governance institutions, including regulators, supervisors, central banks:

  • Specify the use of standards for climate-related reporting on physical risks, and more broadly on transition risks, not only in the finance sector but across the wider economy;
  • Develop and specify standard scenarios sets to establish a foundation for scenario analysis;
  • Build internal technical capacities, collaborate with data providers and access open source data as appropriate, to ensure the availability of robust datasets for financial institutions;
  • Develop a strategy and roadmap to mandatory climate risk disclosure in support of the UN Secretary-General’s recent call to make climate-related financial risk disclosures mandatory.
Commitment to disclose physical risks

Five financial institutions committed, at the UN Secretary-General’s Climate Action Summit in September 2019, to issue climate-related physical risk disclosures by the end of 2021 and they form the core group on climate adaptation at UNEP FI:

  • European Bank of Reconstruction and Development
  • Standard Chartered Bank,
  • Rabobank,
  • Rockefeller Capital Management, and
  • YES Bank.

Five more UNEP FI members joined prior to the Climate Adaptation Summit 2021, and have committed to release climate-related physical risk disclosures by January 2023:

  • ABN Amro,
  • AXA XL,
  • Danske Bank,
  • ING, and
  • LINK Real Estate Investment Trust.

This leadership group will also build support for public policies to encourage climate-related physical risk disclosure across the financial sector, as well as engaging with other financial firms to ensure that a critical mass of institutions commits to disclosure

One year update

Since November 2021, UNEP FI has been reviewing the published disclosures of all ten financial institutions, with a particular focus on the five that launched the commitment in September 2019. In early February 2022, UNEP FI published an overview of its findings, which shows the advances some financial institutions, but underlines the need for greater action by governments, central banks and the finance sector to make such risk assessments more robust, transparent, comparable and accessible.

Quotes

“As the Property and Casualty division of AXA, AXA XL aims to ensure a climate resilient future for both our clients and our communities. We’re committed to sharing our understanding of climate risks and support our industry in raising the bar with TCFD-aligned reporting” – Nancy Bewlay, Global Chief Underwriting Officer, AXA XL

“Even with a successful transition, physical risks will increasingly become a part of our future as world temperatures continue to increase from today’s levels. It is therefore essential that banks continue to assess the full range of climate-related risks as part of their risk management, including trying to estimate the financial impacts from climate change. This will ensure transparency and enable banks to proactively work with customers to mitigate impacts.” – Carsten Egeriis, CRO of Danske Bank

“Climate change presents material risks to business, financial markets, and society as a whole – and these will only increase as the impacts of climate change become more apparent. Within EBRD, we are operating in some of the world’s most climate-vulnerable regions, and so we fully understand the importance of assessing, managing and disclosing the physical climate risks that affect our business operations. We applaud UNEP FI’s important work towards a wider understanding and building more capacity in this vitally important area.” – Annemarie Straathof, Vice President, Risk & Compliance and Chief Risk Officer at EBRD

“Climate change is a severe threat to our planet and banks must do their part,” “That’s why ING is steering our lending portfolio in line with the goals of the Paris Agreement and simultaneously addressing the impact of climate change on our clients and business. For us, climate action and climate risk are two sides of the same coin. We’re financing the transition that’s needed to fight climate change, while also building climate resilience. Open collaboration and transparency through the TCFD-aligned disclosure on physical risks are key in taking on this massive challenge together.” – Ljiljana Čortan, ING’s CRO and member of the Management Board, Banking

“Measurability of the impact of climate on businesses and the financial sector is a very special and important challenge. As a Dutch bank, we are committed to transparency and we strive to contribute to making climate risk measurable. Our early participation in the UNEP FI TCFD working group expresses how important transparency and measurability of climate impact are for Rabobank. We are happy for the opportunity to take the lead again by joining this initiative.” – Wiebe Draijer, chairman of Rabobank’s Executive Board

“As climate change increasingly impacts economies and financial markets, it is prudent for investors to assess the risk and return ramifications to their portfolios and constructively engage with companies and policymakers to create long-term shareholder value. Our work with UNEP FI demonstrates our commitment to enhancing our investment process and delivering value for our clients. We are proud to take a leading role by committing to disclosure of our physical risks.” – David P. Harris, President of Rockefeller Asset Management

“In 2016, UN Environment Programme’s Adaptation Gap Report identified the wide and increasing gap for financing adaptation investments […] Climate change is affecting us now, particularly the poorest and most vulnerable, and will only become worse. It is imperative that the finance sector identifies market vulnerabilities and manages climate risks as we adapt to a warmer world. This is why UNEP FI is proud to partner with leading financial institutions to identify, measure and report on physical climate risk, to signal the importance of building finance sector resilience.” – Eric Usher, Head of UNEP FI 

“Adaptation to climate change and mobilizing positive impact finance at scale requires measurement and disclosure of climate-related risks. YES BANK is pleased to work along with UNEP FI and leading global financial institutions to accelerate overall understanding of physical climate-related risks and fast track implementation of TCFD recommendations. I am sure these orchestrated efforts will increase the resilience of the global economy and promote enhanced transparency & accountability.” – Niranjan Banodkar, Group CFO, YES BANK

Watch UNEP FI’s launch event at the Climate Adaptation Summit 2021: