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Ten UNEP FI members are calling for greater action to boost adaptation finance and have made commitments on climate risk reporting. At the Climate Adaptation Summit 2021, the leading financial institutions delivered a statement calling for greater action on assessment, reporting and management of the physical risks of climate change, and asking policy makers to deliver mandatory disclosure requirements on climate risk. The statement signatory firms are the European Bank for Reconstruction and Development, Rabobank, Rockefeller Asset Management, Standard Chartered Bank, Yes Bank, ABN Amro, Danske Bank, ING, AXA XL and LinkREIT. They have all committed to publish climate risk disclosures relating to their business within two years.
As highlighted in UNEP’s 2020 Adaptation Gap report, the scale of action required to adapt societies to the increasing impacts of climate change is considerable, and even though adaptation finance is slowly rising, it is still well below the levels required. This funding gap can only be met by private finance but will require governments to level the playing field for financial institutions and encourage adaptation finance by making climate risk disclosures mandatory as well as increasing the availability of robust data.
“Financial firms will only be able to adapt their businesses to a hotter world by understanding the long-term risks of climate change. It is only with this data and analysis that they will be able to identify market vulnerabilities and discuss climate risks with their clients. Crucially, it may help financial institutions to identify opportunities in climate resilient innovation and technology.” Eric Usher, UNEP FI Head.
Ways in which financial institutions are adapting their business and helping customers address climate change risk include action such as that taken by Netherlands-based Rabobank which has been assessing the impact of increasing droughts on wooden foundations in pre-1950s buildings. Potential financial risk estimates currently vary widely from €5bn to €54bn and Rabobank is currently developing a strategy to help its clients address this issue. In southern Africa, meanwhile, Standard Bank of South Africa is piloting climate risk assessment methods to estimate the potential impact of increasing wildfire risks due to climate change on its mortgage lending portfolio.
There are signs of greater ambition on climate risk reporting. As of late 2020, over 1,500 corporates had become supporters of the TCFD and initial climate disclosures have been released by the leading financial institutions over the past two years. In September, New Zealand became the first country to commit to signing climate-related risk disclosure into law, and a number of other countries are likely to follow, including the United Kingdom and Switzerland.
Global financial institutions have clients and portfolios across all sectors of the economy and can therefore have a powerful influence on the way that investments are made, and projects are financed. But responding to climate change impacts requires a systemic, risk-based approach to decision making, and to be fully effective, climate disclosures have to become the norm rather than the exception. In the run up to COP26 in Glasgow, action on the part of financial institutions will be crucial. However, it must be supported by fresh policy from governments around the world.
Download the Physical Risks and Resilience Statement.