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09. 06. 2021

Climate Risk Analytics for Financial Institutions: Part 3

Climate-related risks, both physical and transitional, can translate into financial risks for banks and other financial institutions. Both physical risks, or risks arising from devaluation of physical assets due to acute or chronic climate events, and transitional risks, or risks due to changes in policy, regulation, or technology relating to climate protection, can have a financial impact on banks in the long run.

In the previous chapters of this three-part series, we covered how financial institutions can source and validate climate-related data to measure financial risks. In this final chapter, we will talk about how financial institutions can use this clean, complete data for analytics to get an understanding of how climate change will directly impact their business.

Climate Risk Analytics for Financial Institutions (991.4kb)

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Climate risk analytics can be categorized into two types: adverse climate events risk analytics and transition risk analytics. This article cites examples of analytics strategies for each category, such as climate projections, scenario analysis, and carbon footprint assessment, and also outlines some of the challenges that financial institutions might face in their climate-risk analytics journey. We will also delve into the roadblocks that have prevented banks from successfully implementing climate risk analytics. These vary from overall maturity in terms of data quality and governance to the lack of standards for emissions data.

Finally, we talk about Adastra's expertise in the data and analytics space and showcase why we are best placed to support financial institutions as they prepare themselves for the measurement of, and analytics based on, climate-related risk.

Authors

Ilia Bolotine

Ilia Bolotine

SVP Financial Services & Head, Adastra Business Consulting (Canada)
John Yawney

John Yawney

Chief Analytics Officer