Mitigate risks and foster a sustainable future

FROM AWARENESS TO ACTION: THE CRITICAL NEED FOR A COORDINATED GLOBAL PUSH TOWARDS AN ECONOMY WITH REDUCED CARBON EMISSIONS

Climate change stands as an intricate quandary confronting society today. To tackle this pressing matter effectively, there is an imperative need for a concerted global effort aimed at transitioning towards an economy with reduced carbon emissions. It is noteworthy that financial institutions hold a pivotal position in this transformative process, given that they are confronted by climate-related risks while simultaneously possessing the potential to actively influence the transition towards a more sustainable, low-carbon economy.

CLIMATE CHANGE IS NOT ONLY AN EXISTENTIAL THREAT TO CIVILISATION BUT ALSO POSSESS SIGNIFICANT RISKS AND OPPORTUNITIES FOR THE ECONOMY AND THE FINANCIAL SECTOR

POTENTIAL RISKS FOR CLIMATE CHANGE

Climate change is no longer just a distant concern for future generations. The potential risks associated with this global phenomenon are already impacting our present civilization in more ways than one. In fact, they go beyond the environmental implications, extending their reach to the delicate balance of the economy and the financial sector encompassing both physical dangers linked to the changing environment and transitional risks.

Losses in revenue due to
physical risks

Extreme weather conditions can impact the bank

Directly: Through its’ premises and operations
Indirectly: By negatively impacting the creditworthiness of clients and adversely

Disrupting transition paths

That affects bank exposures by:

Decreasing the credit worthiness of their customers
And causing price falls affecting the valuation of companies’ assets

Reputational Risk

Direct risk of client loss for
- Not meeting stakeholder expectations
- Addressing climate change challenge
- Fostering a more inclusive world

Indirect risk through clients losing business affecting their solvency due to not transitioning

Losses in revenue due to
physical risks

Extreme weather conditions can impact the bank

Directly: Through its’ premises and operations
Indirectly: By negatively impacting the creditworthiness of clients and adversely

Disrupting transition paths

That affects bank exposures by:

Decreasing the credit worthiness of their customers
And causing price falls affecting the valuation of companies’ assets

Reputational Risk

Direct risk of client loss for
- Not meeting stakeholder expectations
- Addressing climate change challenge
- Fostering a more inclusive world

Indirect risk through clients losing business affecting their solvency due to not transitioning

CLIMATE CHANGE RELATED OPPORTUNITIES

Financing the Transition

The transition to a low-carbon economy is today’s defining opportunity for innovation and growth

There is increasing demand for capital to finance emerging climate-resilient technologies and practices

Capital investments are required for the global energy transition towards lower-emitting energy sources and financing the generation of electricity with renewables such as wind, solar, and water

Providing Sustainable Financing Solutions

Banks can create sustainable financial products, such as the issuance of green, social, and sustainable bonds, as well as green mortgages, loans and investment funds, to help clients finance their sustainability journeys and formalise their sustainability commitments

Strategic Advising and Educating of Clients

The bank can play a unique role by providing expertise and advice for clients to facilitate their transition toward a low-carbon economy

Banks can have the greatest impact by collaborating with clients, partners and broader stakeholders to support innovation and manage climate-related risks as they decarbonise their businesses and make progress towards net zero ambitions

Regulatory Changes

The regulatory landscape is shifting. Governments are imposing stricter emissions standards, including on vehicles, aircraft, industrial installations, and farm operations. Authorities are also starting to establish climate-related disclosure requirements

Banks can engage and work closely with governments to support the development of practical and ambitious policies where appropriate and support the creation of national green finance strategies. As major economic contributors, banks can participate in relevant public policy debates and add value for clients

ASPECT ADVISORY CLIMATE STRESS TESTING CAPABILITIES

By employing our sophisticated climate risk stress testing and modeling methodologies, we have been able to guide our clients and assist them in evaluating both physical and transitional climate hazards. As a result, boards are empowered to attain lasting, sustainable advantages in the competitive marketplace for their financial institutions. Furthermore, our proficient management of climate change risks enables us to meet stakeholder expectations in an effective manner.

The fundamental components for conducting Climate Risk Stress Testing involve the identification of climate risks, evaluation of their macroeconomic impact, and assessment of their microeconomic impact.

RISK ASSESSEMENT:

Physical Risks:

Assess the extent to which the bank’s assets are susceptible to climate-related physical risks. Such risks may encompass properties located in coastal areas at risk of flooding or agricultural loans that are vulnerable to shifts in weather patterns.

Transition Risks:

Examine the potential influence of the shift towards a low-carbon economy on the bank’s investments and clientele. Assess the ramifications of regulatory modifications, technological advancements, and market inclinations pertaining to endeavors aimed at mitigating climate change.

RISK ASSESSEMENT:

Physical Risks:

Transition Risks:

DATA COLLECTION AND ANALYSIS:

Collect Climate Data:

Gather pertinent climate data, encompassing historical climate patterns, projections, and scenarios. Use this data as a means to gauge the potential repercussions on different sectors of the economy.

Stress Testing:

Conduct stress tests to analyze the potential impact of different climate-related scenarios on the bank’s loan portfolios, investments, and overall financial health. Use these simulations to understand the range of possible climate scenarios and thoroughly evaluate their potential consequences.

DATA COLLECTION AND ANALYSIS:

Collect Climate Data:

Gather pertinent climate data, encompassing historical climate patterns, projections, and scenarios. Use this data as a means to gauge the potential repercussions on different sectors of the economy.

Stress Testing:

ENGAGE WITH CLIENTS

Client Risk Assessment:

Assess the climate hazards encountered by the bank’s clientele and actively engage with them to comprehend their approach in curtailing these risks.

Encourage Sustainable Practices:

Urge clients to embrace sustainable practices and make investments in environmentally friendly technologies. We also offer a range of financial products and incentives specifically designed to promote and support sustainability.

ENGAGE WITH CLIENTS

Client Risk Assessment:

Assess the climate hazards encountered by the bank’s clientele and actively engage with them to comprehend their approach in curtailing these risks.

Encourage Sustainable Practices:

REGULATORY COMPLIANCE:

Stay Informed:

Keep abreast of both national and international regulations pertaining to climate risk disclosure and mitigation. Adhering to these regulations is of utmost importance for the bank’s reputation and long-term sustainability.

Implement Disclosure Requirements:

Implement the recommendations made by regulatory bodies regarding the disclosure of climate risk. It may be necessary to include the disclosure of financial information related to climate in annual reports.

REGULATORY COMPLIANCE:

Stay Informed:

Implement Disclosure Requirements:

PARTNERSHIPS AND RESEARCH:

Collaborate:

Engage with esteemed research institutions, esteemed environmental organizations, and esteemed governmental bodies in order to maintain up-to-date knowledge regarding the most recent developments in climate research and initiatives.

Internal Research:

Undertake internal research in order to evaluate the potential ramifications of climate change on the bank’s operations and financial stability.

PARTNERSHIPS AND RESEARCH:

Collaborate:

Internal Research:

Undertake internal research in order to evaluate the potential ramifications of climate change on the bank’s operations and financial stability.

RISK MITIGATION AND ADAPTATION:

Diversification:

Mitigate the risks associated with climate-related vulnerabilities, it is advisable to diversify the investment portfolio of the bank across various sectors and regions.

Insurance and Hedging:

Consider climate risk insurance and hedging strategies to mitigate potential losses from extreme weather events and other climate-related disasters.

RISK MITIGATION AND ADAPTATION:

Diversification:

Mitigate the risks associated with climate-related vulnerabilities, it is advisable to diversify the investment portfolio of the bank across various sectors and regions.

Insurance and Hedging:

Consider climate risk insurance and hedging strategies to mitigate potential losses from extreme weather events and other climate-related disasters.

TRAINING AND AWARENESS:

Staff Training:

Provide comprehensive training to employees to enhance their ability to identify and assess climate-related risks. Additionally, these training sessions will emphasize the importance of incorporating climate considerations when making decisions.

TRAINING AND AWARENESS:

Staff Training:

HOW WE CAN HELP

We have developed a climate risk stress testing framework which enables financial institutions to assess their exposure to climate risk.

DEPLOYING UP-TO-DATE CLIMATE MODELS AND RESEARCH

Our platform is constantly updated with the latest climate models, data, and research to ensure continued relevance and effectiveness.

We collaborate with credible organizations that provide recommendations which have been universally adopted as reporting guidelines for Environmental, Social, and Governance (ESG) data in diverse financial markets.

Mitigate risks and foster a sustainable future