The Nation (Nigeria)
‘Climate change tops long-term risks for banks’
CLIMATE change tops the list of long-term risks for banks, a survey by Ernst & Young (EY), a global tax and auditing firm says.
The 11th EY and Institute of International Finance (IIF) Bank Risk Management Survey, entitled: "Resilient banking: capturing opportunities and managing risks over long- term'', which surveyed 88 financial institutions across 33 countries, provides a window into the changes in risk management seen globally during the past decade, and the major risks anticipated over the next 10 years.
More than nine in 10 finacial instititions (91 per cent) surveyed said bank chief risk officers (CROS) view climate change as the top emerging risk over the next five years. Only about half (52 per cent) of CROS said the same in 2019.
In the near-term, almost half (49 per cent) of CROS view climate change as a top risk requiring their urgent attention over the next 12 months. In 2019, only 17 per cent took that view. Beyond climate change, the most important emerging risk, according to CRO respondents, is the length and depth of the global economic recovery (83 ).
Partner, Banking & Capital Markets Sector Leader, EY West Africa, Benson Uwheru, says: “In the past year, we saw climate change rapidly ascend to the top of banks’ long-term risk agendas for the first time. Bank boards and senior management must remain resilient across a broader set of dimensions as the world adapts to a post COVID-19 world, and it’s clear that includes climate-related risks, as well as other environmental, social and governance matters.”
The survey finds that banks in practice are still maturing in their ability to assess physical and transitional risk exposures: just over half (54 per cent) have a preliminary understanding of their climate change risk exposure and more than a quarter (28 per cent) have a somewhat complete understanding.
EY Regional Managing Partner for West Africa, Anthony Oputa, adds: “Beyond the issues around technology and data and the pace and breadth from digitisation driving the entire business processes, business leaders and decision makers see climate change as one of the most critical and defining issues of our time that requires urgent attention.
“Financial institutions, which seem to be the most affected, have the responsibility to consider and treat every climate-related risk, and all other environmental, social and governance issues with all seriousness. The time to act is now amid the global economic recovery from the COVID-19 pandemic.”
In the near-term, banks believe credit risk will be the No. 1 concern over the next 12 months – according to 98 per cent of CROS – amid the global economic recovery from the pandemic. Cybersecurity is perceived to be the second most urgent risk (80 per cent).
Uwheru further says: “While cybersecurity has long been the leading immediate concern for CROS, the COVID-19 pandemic changed the game. The breadth and depth of the pandemic’s shock to the global economy has brought credit concerns to the forefront for banks over the next 12 months.”
Other key survey findings include almost one in three (29 per cent) of banks believe they can manage down costs of controls over the next three years by using data and technology to improve risk management.