UK firms lacking strategies for combating climate change risks

Only one in five UK financial services firms have a well-developed strategy to manage the potential risks of climate change, according to a new report. Around half of the banks, insurers and asset managers questioned by recruitment firm Odgers Brandtson said they are considering a more co-ordinated approach to tackle emissions targets.

The poll results coincided with an address to over 100 chief executives and senior leaders of banks, insurers, asset managers and other financial services firms by Sarah Breeden, executive director of the Bank of England’s climate risk division. The Bank is holding a consultation, led by Breeden, to stress-test the approaches firms are taking. She said: “Every single asset on the planet will have a different value in a world of net zero. This affects infrastructure, properties, transport and even agriculture – and so the need to transition creates a very broadly-based risk.”

“We’re in a much better place now than we were many years ago, but this, at its heart, is a forward-looking risk. What matters is what is going to happen in the future, and what companies’ strategies are to deal with these risks over the next 10 or 20 years – but looking ahead that far, is just hard.

There is concern among some central banks that financial companies are more focused on the current physical risks linked to climate change, like floods and wildfires, with less attention being placed on future ‘transition’ risks, associated with businesses adapting to a zero-carbon world.

For the Odgers Brandtson survey, almost 700 senior executives of financial services firms were asked about their company’s approach to climate risk, the biggest challenges it presents, and what they need most in order to smooth the transition to a carbon-free world.

Only a fifth (22%) said their company has a well-developed strategy and policies to address both the physical and transition risks from climate change, with roughly the same proportion of firms prioritising just one, and most (45%) considering how to take a more co-ordinated approach.

When it came to the role of central banks, regulators and supervisory authorities, firms clearly agreed (37%) that their most important contribution is to drive accountability at CEO and board level. This was seen as more important than any other factor, with clarity over standards, shared tools and international cooperation all taking lower priority.

Breeden said: “Business leaders must be very clear that they think this is a risk, make someone accountable for it, incentivise people, for example through remuneration, to do the job well, and provide the resources required to do it. Most importantly, they need to set a strategy – a risk appetite if you like – for how their organisation is going to manage climate risk and monitor progress.”

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