In conjunction with Climate Week NYC 2020, on September 22, Maxine Nelson, SVP, GARP Risk Institute and Jo Paisley, Co-President, GARP Risk Institute, hosted a virtual meeting for GARP’s chapters. They discussed some of the ways in which climate risk has far-reaching and complex characteristics that risk managers need to understand to assess the financial risks that their firms are exposed to.
Following an overview of climate risk and how it could impact companies, and in particular financial institutions, they presented key findings from GARP’s second annual climate risk survey. The research provides insights into how financial institutions are measuring and managing the risks and opportunities associated with climate change, and the challenges they are facing.
Some key takeaways from the meeting based on audience polling:
- Nearly half of respondents said they need to incorporate the impact of climate change into their day-to-day work.
- Roughly 25% indicated they have external drivers to understand climate change risks, from regulatory pressure and investor engagement.
- A majority said they have a personal interest in climate risk, which is inline with an overall increase in awareness in the general population about the risks that arise from climate change.
- Although 20% said they understand the ways in which climate risk will affect their firm’s existing risk types, a majority said they have either limited or no knowledge of this issue. This supports our findings that firms are concerned about the availability of expertise on their teams over the next 5 years.
Physical and transition risk will impact all existing financial risk types, such as credit risk, market risk, operational risk, and insurance underwriting risk. Of note is that while most respondents need to be educated about both these transmission mechanisms, about a quarter of the respondents said that they only need to be educated about one of them.
Whether it’s driven by regulatory pressures, demands from investors or internally, firms are taking a greater interest in climate risk. Many are recognizing that they must develop a better understanding of climate risk and incorporate it into their day-to-day business activities. Though firms may realize they need to fortify themselves to respond to future risks, many lack the roadmap to get there.
Climate Week NYC 2020 provided an opportunity to raise awareness of the potential impact of climate change on an organization. The next step is education: risk managers who acquire the appropriate knowledge about sustainability and climate risk can help their organizations prepare for an uncertain future. GARP’s Sustainability and Climate Risk (SCR®) program equips professionals with specialized insights and knowledge to manage these risks. By understanding the ways in which climate-related issues impact their business, these professionals will be positioned to take advantage of the opportunities associated with managing climate change.
Here’s a link to the virtual meeting.