New Telegraph

EY: Climate change now top concern for banks

For the first time since the survey’s inception over a decade ago, the latest EY and Institute of International Finance (IIF) Bank Risk Management Survey, titled: “Resilient banking: capturing opportunities and managing risks over the long term,” shows that climate change tops the list.

 

The survey – the 11th carried out by the organisation, which covers 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.

 

Specifically, the survey shows that more than nine in ten (91 per cent) surveyed 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 now 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 per cent).

 

The survey also 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.

 

Commenting on the findings, Partner, Banking & Capital Markets Sector Leader, EY West Africa Benson Uwheru, said: “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 now includes climate-related risks, as well as other environmental, social and governance matters.”

 

Similarly, EY Regional Managing Partner for West Africa, Anthony Oputa, said: “Beyond the issues around technology and data and the pace and breadth from digitization driving the entire business processes, business leaders and decision makers now 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 climaterelated 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.” Uwheru further stated that “while cybersecurity has long been the leading immediate concern for CROs, the COVID-19 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.”

 

Banks, in the near-term, 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 COVID-19.

 

Cybersecurity is perceived to be the second most urgent risk (80 per cent).

 

Other key survey findings include that: Almost one in three (29 per cent) of banks now believe they can manage down costs of controls over the next three years by using data and technology to improve risk management; seven of the top 10 emerging risks according to CROs relate to technology and data, including the pace and breadth of change from digitisation (68 per cent), industry disruption due to new technologies (68 per cent) and obsolescence/ legacy systems (62 per cent); based on lessons learned from the COVID-19, 93 per cent of CROs expect to see the introduction of new or additional regulatory requirements on operational resilience, and 60 per cent of CROs expect the same on financial resilience and CROs expect their banks to further accelerate their digital transformation, including by automating processes (88 per cent), modernising core technology platforms (66 percent) and delivering enhanced insights to customers (64 per cent).

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