Managing physical climate-related risks in loan portfolios - UNEP Finance Initiative
Managing physical climate-related risks in loan portfolios - United Nations Environment - Finance Initiative
The urgency to address climate change has never been more pressing, with recent findings showcasing the severe consequences of inaction. According to the Intergovernmental Panel on Climate Change, surpassing global warming by 1.5°C could lead to unavoidable increases in climate hazards, exposing ecosystems and humans to unprecedented risks. This report offers an in-depth analysis of physical climate risk management to equip retail banks with tools to effectively assess, manage, and minimise physical climate risks in their business. This report focuses on the nuances to provide concrete, actionable insights for financial institutions. Retail banks can utilise this as a practical guide as it provides a comprehensive overview of current practices, emerging trends, and innovative approaches to managing these risks.
It is a technical supplement to UNEP FI’s renowned annual Climate Risk Landscape Report which serves as a comprehensive resource delving into the available tools for financial institutions to assess physical and transition climate risks and boost their institution’s resilience to related impacts.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”