Many banks provided a qualitative description of the risks and opportunities, as well as their potential impacts. But only a few provided insights into their potential impacts on the organization. A number of banks provided general statements on the resilience of the organization in relation to the identified risks.
Some of the top-performing banks stood out by disclosing specific physical and transitional risks over the short-, medium- and long-term. They also provided a quantified, substantive financial impact under a two-degree scenario or less.
A range of risk management strategies were disclosed. Most banks noted that climate-related risks were assessed and managed as part of the broader, more established ESG risk policy and processes, or by investment committees that consider sustainability factors when making lending or investment decisions.
The most detailed disclosures provided specific examples of transitional and physical risks identified at a bank-wide level. Some banks also identified key sectors that were specifically considered within the risk management activities, including energy, manufacturing, property, agriculture and infrastructure. As part of their risk management approach, several banks also included information on how they were reducing their exposure to coal.
Although 60% linked their climate risk activities to enterprise risk management, most did not disclose any detailed description of how this was achieved. This recommendation received one of the lowest scores in terms of quality, with an average score of 31%.
Top performers for risk management undertook the following:
- Systematic monitoring of emerging risks by conducting periodic reviews to identify new and emerging risks, and trends
- Global capacity building initiatives by developing collaborations with clients, peers and regulators
- Preparing qualitative statements on climate risk in the risk appetite framework
- Carbon risk assessments as part of the lending and credit risk assessment of the customers’ lending portfolios
Some of the top-performing banks have been offering lower rates of interest for sustainability or cleaner energy projects, or other finance or insurance products. However, these tend to be pilots, or one-off product offerings rather than practices integrated into mainstream lending practices.
Targets and metrics
Sixty-three percent of banks disclosed some data in relation to targets and metrics. The quality score was the highest of the four TCFD components, at 32%, and attributable to the consistency of measuring a selection of environmental performance metrics (rather than target setting). Most banks disclosed their Scope 1 and 2 greenhouse gas (GHG) emissions and, in some cases, even Scope 3 emissions (such as those from purchased goods and services, travel, and waste).