The availability of data has been named as the top challenge faced by financial institutions in addressing climate risk, according to a study by Willis Towers Watson.
The survey conducted by the global broking giant revealed that 80% of respondents identified data as their top concern in the transition to a net zero economy, followed by difficulty in making quantitative assessments (75%) and insufficient expertise in the actions required (62%).
A total of 122 organisations, including insurers, banks and asset managers were polled for the study, which is part of Willis Towers Watson’s Climate Risk and Financial Stewardship Summit. It seeks to gain insights on the progress of financial firms in managing the impact of climate risk on their business.
A significant number of respondents (40%) believe that the level of climate risk faced by their business will increase over the next five years. With the global progress on climate goals set forth in the Paris Agreement falling behind schedule, respondents said that implementing a strategy to achieve net zero is the most common challenge in meeting goals (43%), followed by a lack of tools or data (32%).
Respondents cited transition (75%), reputational (63%) and social responsibility (57%) risks as the top priority of their organisations in bridging the gap and achieving net zero emissions.
“Future climate risks are unprecedented and systemic, and the magnitude of the challenge is so huge and the moment so late that every lever is being explored to turn economies to meet the Paris targets,” said Rowan Douglas, head of Willis Towers Watson’s climate and resilience hub. “While the financial sector is well placed to take a lead, climate-related risk not only needs to be integrated into day-to-day risk management but also to steer the whole economic transition to a low-carbon and resilient future.”
Data from the Carbon Disclosure Project showed that there is a lot that businesses need to do with regard to climate risk. Close to half (49%) of the 500 largest companies in the world have not yet made any analysis of how their portfolio impacts the climate. This is despite portfolio emissions of global financial institutions being more than 700 times larger than direct emissions.
“We are seeing an evolution in what net zero finance means for the financial sector and its stewardship role in a whole economy transition towards a climate resilient future,” Douglas said. “Meanwhile pressure from ambitious new climate targets and scrutiny from central banks, regulators, investors and the wider public continues to increase. To continue to thrive, financial institutions will need to adapt and align their portfolios with a net zero carbon world.”
