White Paper

Second Annual Global Survey of Climate Risk Management at Financial Firms: Mapping out the Continuing Journey

May 14, 2020

The focus on the potential financial risks from climate change has intensified since the GARP Risk Institute's inaugural global, cross-sectoral survey of climate risk management in 2019. Regulators are increasingly looking to understand financial firms' practices in this area, with some setting formal expectations and establishing stress-testing exercises. Simultaneously, investors are looking for improved climate-related disclosures from firms to help them better understand the nature of these risks and price them accordingly.

Against this backdrop, GARP Risk Institute's 2020 survey of climate risk management practices covered a significantly larger sample of firms than in 2019, with 71 (versus 27 in 2019) financial institutions participating: 43 banks and 28 other financial institutions, comprising asset managers, insurers and financial market infrastructure companies. These firms have a global footprint, cutting across all regions. Collectively, they have around $42 trillion of assets on their balance sheets, have assets under management of $36 trillion, annually process more than $1,800 trillion of securities and account for about $3.8 trillion in market capitalization.

As in 2019, the GARP Risk Institute survey was structured around the main themes for climate risk reporting that have been developed through the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. The topics covered include the governance and strategy to deal with actual and potential climate risk; firms' approach to risk management; metrics, targets and limits used to assess and manage climate risk and opportunities; the use of scenario analysis to understand the risks; and climate risk disclosures.

Climate risk will affect different types of firms in different ways, reflecting the diverse nature of the firms' business models and the geographies in which they operate. The range of practices reported cover the spectrum from firms that are at the forefront of climate risk assessment to those that are just starting on the journey.

This year, we were able to build a more detailed maturity model for climate risk management, diving into some topics in more depth. Using this maturity model, we scored and rank the participating firms on their current climate risk management capabilities across six dimensions: (1) governance; (2) strategy; (3) risk management; (4) metrics, targets and limits; (5) scenario analysis; and (6) disclosure.

This model provides a useful snapshot of current climate risk management practices across the financial services industry and should help firms prioritize future improvement areas. It also provides a map to those firms that are just starting along the path to identifying and managing climate-related risks to their businesses.