Data and expertise key challenges for financial sector in climate transition

The availability of data is the greatest challenge financial institutions expect to face over the next five years as they seek to address climate risk. Difficulties in making quantitative assessments and insufficient expertise in the actions required to facilitate a transition to a Net Zero economy were also identified among the key barriers to progress, according to a survey.

Conducted as part of Willis Towers Watson’s Climate Risk and Financial Stewardship Summit, the survey polled 122 organisations including global banks, insurers, wealth and asset managers to gain fresh insights on progress made to assess and manage the impact of climate risk on their business.

Over the same five-year timeframe, few respondents said they expect the level of risk associated with climate change to diminish; on the contrary, 40% predict today’s level of risk to escalate, suggesting little hope that work already underway will bear any fruit at all in that time.

WTW’s survey respondents said that implementing a strategy to achieve Net Zero is the most common challenge to making this commitment (43%), followed by a lack of tools (32%).

Rowan Douglas, head of Willis Towers Watson’s Climate and Resilience Hub, said: “Future climate risks are unprecedented and systemic, and the magnitude of the challenge is so huge and the moment so late that every lever is being explored to turn economies to meet the Paris targets. While the financial sector is well placed to take a lead, climate-related risk not only needs to be integrated into day-to-day risk management but also to steer the whole economic transition to a low-carbon and resilient future.

“We are seeing an evolution in what Net Zero finance means for the financial sector and its stewardship role in a whole economy transition towards a climate resilient future. Meanwhile pressure from ambitious new climate targets and scrutiny from central banks, regulators, investors and the wider public continues to increase. To continue to thrive, financial institutions will need to adapt and align their portfolios with a Net Zero carbon world.”

WTW’s survey also looked at immediate risk issues, with transition (75%), reputational (63%) and social responsibility (57%) risks cited as key.

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