NEW YORK, February 7, 2022 /PRNewswire/ — A new benchmarking study has found that climate change is placing increasing demands on leading financial institutions around the world to establish and implement climate risk mitigation strategies. The study – conducted by consultancy Sia Partners and law firm Cadwalader, Wickersham & Taft LLP – involved dozens of interviews and a quantitative survey of more than 70 global financial institutions. Survey submissions and interviews for the full market research ran until January 2022.
The study involved foreign banks, G-SIBs, investment managers, US regional banks and European banks. Readiness varied by institution size and geography, but, notably, about 90% of participants have at least begun the process of a climate risk framework. Execution could be a challenge, however, as less than 20% of participating companies had fully engaged lines of business to perform risk assessments and therefore “still lack a clear understanding of how the climate change will affect them,” according to the study’s analysis.
“It is promising and significant that so many financial institutions around the world are focusing very seriously on the implications of climate change,” said Bradley Ziff, chief operating officer at Sia Partners who led the project for both companies. “There is considerable work to be done, and study participants noted that the industry is well past the point of kicking the box. Leaders in this area are emerging – namely, large banks and investors and those who have been investing for several years by putting in place real climate risk mitigation strategies supported by operational and data efforts to meet both market and regulatory objectives.
While coalition-building efforts, including the globally recognized efforts of the Task Force on Climate-Related Financial Disclosures (TCFD), with its more than 2,500 signatories, have had an impact, an increasingly important driver is the rapid expansion of regulatory oversight globally. Increased pressure from government entities is already forcing financial institutions to take additional action, according to the study. After all, only 21% of the G-SIBs in the study said they had implemented all of the additional recommendations and guidance published by the TCFD, although there are significant geographic differences within this group.
“Banks and financial institutions should view climate risk mitigation not only as a regulatory requirement, but also as an important opportunity to increase their market presence and as a customer service,” said Scott Cammarn, senior counsel in Cadwalader’s financial services group. “Financial institutions that are furthest along in their thinking about climate risk are applying what they’ve learned from dealing with their internal and proprietary challenges as lessons that can be passed on to customers and potentially as opportunities to increase their revenue by helping clients manage their regulatory, business and customer stakeholder risks.”
Study participants highlighted the critical need for global standardization between regulators and industry for disclosure requirements, among others. The plethora of different approaches made adhering to best practices a major challenge for nearly all study participants. This was a concern highlighted among study participants with global operations, where conflicting regulatory approaches created significant problems in building their programs.
Another key finding of the study is the criticality of enhanced data. The study found that participants “who have been successful to date are those who have begun to strive for quality data to drive many other areas of their programs.” Participants also noted that more mandatory public disclosure will, in turn, lead to more data generation and analysis.
Jean Gustavepartner and head of U.S. financial services at Sia Partners, pointed out that improved data will likely be achieved through improvements in governance.
“Effective governance models will drive implementation and more disclosures, and therefore better data for the industry to measure and analyze,” he said.
The Sia Partners-Cadwalader study revealed a number of other important findings:
- Only 8% of respondents conduct scenario analyzes to assess the impact of climate and broader environmental risks.
- 92% of our respondents think regulators should adopt more standardized or detailed disclosure rules.
- Almost all (95%) of companies identified international frameworks as a priority to consider in developing their framework, highlighting the need for regulatory convergence.
- A slight majority of participants (51%) conduct internal research to develop new climate risk products.
- G-SIBs had the highest percentage of respondents (80%) actively pursuing sustainable product development.
- 25% of respondents do not intend to allocate budget to climate risk transformation projects and activities.
“Opportunities are not lost for financial institutions,” said Brendan Moriarty, co-author of Sia Partners. “There are serious players with innovative approaches, pushing ahead with their attacking stance, rather than strategizing on how to mitigate physical and transitional risks.”
Sia Partners’ Ziff concluded: “The study suggests that companies appreciate that the climate clock is ticking fast and that, for a host of good reasons, they will need to make both thoughtful and balanced efforts to achieve meaningful reductions. risk mitigation. increasingly challenged to create approaches that map targeted CO2 emissions reductions while recognizing the economic realities of achieving these goals among the richest and poorest countries Study participants visit trusts that the next few years will be crucial for initiating these mitigation programs and working with industry officials to develop practical solutions that industry can adopt. »
About Sia Partners
Sia Partners is a new generation management consulting firm and a pioneer in Consulting 4.0. We offer a unique blend of AI and design capabilities, augmenting traditional consulting to deliver superior value to our customers. With expertise in more than 30 sectors and services, we optimize the projects of our customers all over the world. Thanks to our Advice for the good approach, we strive to have a greater impact by developing innovative CSR solutions for our clients, making sustainability a lever for profitable transformation.
About Cadwalader, Wickersham & Taft LLP
Cadwalader, Wickersham & Taft LLP, established 230 years ago, serves a diverse clientele, including many of the world’s largest financial institutions, corporations and funds. With offices at new York, LondonCharlotte, Washington and Dublin, Cadwalader provides legal expertise in the areas of antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, healthcare, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, financial regulation, securitization, structured finance, taxation and white collar advocacy. For more information visit www.cadwalader.com.
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SOURCE Cadwalader, Wickersham & Taft LLP