For 72% of the world’s largest banks, climate change is financial risk

Kpmg recommends the use of the Niif, an instrument that has become a popular tool for evaluating this contingency.

It is increasingly common to hear news from banks about credit lines for financing green projects or initiatives to reduce their carbon footprint. This goes beyond being part of a sustainable trend that is strongly imposed; it is intended to be a protection mechanism for the industry.

The latest report from the auditing firm Kpmg revealed that 72% of the banks surveyed, including the 25 largest in the world, assure that climate change is a financial risk that will affect their business in the long term. In addition, 68% consider it to be a material or principal risk and a fifth of financial institutions revealed a change in their assessment, from an emerging risk to a material risk in 2020.

“Many of the banks surveyed have integrated climate risk into their broader risk frameworks and are beginning to follow established standards on risk, identification, assessment, management and reporting processes to address climate risk,” said Gabriela Margarita Monroy Díaz, Director of the Audit Financial Service of Kpmg Colombia.

With the pandemic, financial institutions understood that a social change has a profound impact on the sector, as a climate catastrophe could change life as we know it now and significantly harm the banks' businesses. For this reason, the industry is already working on solving this problem.

For this reason, they expanded their sustainable credit lines, with target amounts ranging from a few billion to US $ 1 trillion by 2030. According to the financial institutions surveyed, banks have turned to sustainability reports as a way to mitigate risk to through damage measurement.

Two years ago, a search for the word “climate” in the annual reports of these banks (2018) returned 36 results. The same search in 2020 returned 99, three times more than in the first measurement.

The problem and its alternative solutions are increasingly evident. Many banks have created new management roles with responsibility for sustainability and climate change, with titles ranging from global head of climate change to global head of sustainability, and a third of the entities in the sample have disclosed that they explicitly did climate change a key responsibility of the CEO.

To combat the problem, Kpmg recommends the use of the International Financial Reporting Standards (Niif), an instrument that has become a popular tool for assessing climate risk, due to its control capacity.

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