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January 20, 2011
Financial Sector Is Unprepared to Assess Risks of Climate Change
    by Robert Kropp

A survey of financial institutions indicates that while they expect to incorporate climate risks into their business practices, information at present is insufficient.

Respondents to a survey of 60 financial institutions from both developed and developing countries expect that climate change related risks will become increasingly relevant for the financial sector, but at present a majority believes information is insufficient, particularly over the long-term.

The results of the survey are included in a report entitled Advancing adaptation through climate information services, from the Climate Change Working Group (CCWG) of the United Nations Environment Program Finance Initiative (UNEP FI), and the Sustainable Business Institute (SBI) of Germany.

According to the report, the 11 insurers that responded are already "recording variations which are quite different from historical experience and data," and expect the trend to increase in the future. Most insurers are already amending their products in response, and all expect to have to do so in the future.

Less than half of lenders, for whom "credit risk assessment and due diligence are core elements," report that climate change risks affect their credit transactions at present. However, 80% of respondents expect such risks to become increasingly relevant, and two-thirds believe there are reputational risks associated with carbon-related lending.

Seven of the 19 asset managers who responded to the survey state that they always integrate climate change into their portfolio management, while another nine report that they do so in exceptional cases. However, the authors of the report do warn that respondents to their survey "are not typical of the universe of asset managers, where generally speaking climate change impacts are ignored."

The respondents expressed the need for improved historical weather data, better information on climate risks in each of the six macro-regions of the world, and improved climate change information specific to industry sectors.

"Improved and applied climate information is of high economic value for the financial sector and the private sector in general," the report concludes. However, "Without information transparency, stakeholders, in both private and public sector, will fail to develop economically efficient responses for climate change adaptation and risk management."

Mark Fulton, Managing Director at Deutsche Bank Climate Change Advisors and Co-Chair of the CCWG, stated, "This study confirms that what private sector institutions need in order to become real 'adaptation catalysts' is objective and reliable information." According to the report, the development of a worldwide information architecture will require both interaction at the regional and national level, as well as from a global perspective.


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