The banking industry presents new methodologies to face the challenges of climate change

The banking industry has presented new methodologies to face the challenges of climate change. The work has been coordinated by the Financial Initiative of the United Nations Environment Program (UNEP FI, for its acronym in English) and Acclimatise, a British company specializing in advising on climate risks, in which sixteen banking entities have participated. what is BBVA?

The new methodologies, whose preliminary delivery, focused on transition risks, took place in April, are designed to allow banks to understand the impact of climate change risks and opportunities on their credit portfolios through metrics key to credit risks such as the Probability of Default (PD) and Loan-to-Value (LTV) ratio- click to find out more Nettwerklabel. These predictive evaluations take into account a long-term perspective, beyond the time frame of two or three years that, in general, are taken into account in the performance of stress tests.

The study shows that physical risks will skyrocket markedly if the global economy does not focus on lowering current levels of greenhouse gas emissions. However, he argues that a global, effective and decisive commitment that would result in a drastic cut in gas emissions in the short term would only contribute to reducing, in part, not completely eliminating these negative effects.

The methodologies have been designed based on the recommendations of the Working Group on Financial Information Disclosure (TCFD) of the Financial Stability Board (FSB).

Coinciding with the presentation of the methodologies, the executive director of UNEP FI, Eric Usher, has highlighted the value of this initiative since “Both for financial institutions and for market players, effective management and response to climate change always implies two things: understand and respond to the growing and inevitable impact of climate change and take advantage of the opportunities of the transition to economies without CO2 emissions “.

“We are proud to be part of this group of 16 banks that together with Acclimatise are working to develop the methods and tools that will help the financial sector to respond to climate change in a comprehensive manner, covering both the physical and transitional dimensions of the challenge”. has indicated.

The first approach to the methodology has been carried out in three sectors especially sensitive to climate change such as agriculture, energy, and real estate. In this way, the first results have shown the need to assess the risks derived from both climate change and increasingly frequent extreme weather events, to which customers and banking credit portfolios are exposed.


The technological director and co-founder of Acclimatise, Richenda Connell, points out the advantages of the initiative’s results in the face of risks but also in the face of opportunities: “The physical impact of climate change can pose a risk to the credit portfolios of banks. Innovative methodologies published today to establish the foundations that will allow progress to be made as research and data analytics techniques improve. ”

“When banks become aware of the magnitude of the risks they face, this will be a milestone that will encourage other large corporations to take climate change management very seriously.” This reinforcement of the strength to resist the impacts of climate change. Climate change also offers opportunities for banking, and understanding this phenomenon we are facing will be a comparative advantage, “he said.