A group of large banks, including Bank of America, Wells Fargo and Royal Bank of Canada, have formed a consortium to jointly address climate-related risks, a move that comes as financial institutions increasingly grapple with the issue.
The consortium, formed by 19 banks and the Risk Management Association, intends to develop standards for measuring and managing climate risk, according to an announcement expected later on 12 January.
The consortium’s formation follows recent calls by senior US banking officials to have financial institutions more comprehensively weigh the risks associated with a changing climate. The consortium intends to develop consistent frameworks and standards for climate risk management, the RMA said.
“When you think about climate change, and then you think about what the science is telling us is going to happen, it will literally have implications and impact across a broad spectrum of industries across a broad spectrum of geographies,” said Mary Obasi, a climate risk executive at Bank of America who chairs the consortium.
“I think it behooves us—just like we do with any other area of risk—to really understand what could play out, what could happen, and then just build out our processes to manage it well,” Obasi said.
Banks can play a major role in the transition to a so-called net-zero economy, said Nancy Foster, the president and chief executive of RMA, an organisation that serves risk professionals at financial institutions.
“This is an enormous problem for us all to tackle,” Foster said. “I think it’s so important for banks to lead, as opposed to react.”
Foster said banks could eventually be involved not only in determining, for example, what assets have exposure to weather events, but also in collecting data on their clients’ carbon emissions. She likened the expected scrutiny from banks to their role in combating money laundering by criminals.
“Banks argued for a long time, it wasn’t their role to monitor for bad actors on behalf of the government, but that’s the role that they play,” she said. “They’re already in the — I don’t like to call it the policing business — but they’re already doing that today.”
Foster said, though, that it is too soon to know exactly how the consortium’s work might affect an individual bank’s policies.
Many large banks increasingly have sought to position themselves as leaders in efforts to control carbon emissions. Most of the world’s big banks and their regulators last year pledged to fund a shift that would reduce businesses’ carbon footprint.
Banks’ push into the climate arena has drawn mixed responses, with some activists questioning the sincerity of banks’ commitments, while more conservative observers argue that banks should provide services to all legal industries, including fossil-fuel extraction.
This article was published by The Wall Street Journal.
Source: fnlondon.com
