For Chief Risk Officers (CRO) in the banking sector, managing the challenges of climate risk is among their top priorities. Welcome to post #3 of the CRO series.
Climate risks can manifest in different forms, such as physical risks like natural disasters, and transition risks such as shifts in policy or market preferences. These risks can have a substantial impact on various aspects of a bank’s operations, from asset values and credit ratings to loan portfolios and insurance policies.
To effectively manage these risks, CROs must get the following three steps right:
✔ Integration: They must integrate climate risks into the bank’s overall risk management strategy. This includes assessing the bank’s exposure to different types of climate risks and determining how they could affect its financial performance.
✔ Collaboration: CROs must also collaborate closely with other departments within the bank to ensure that climate risks are adequately considered in decision-making processes. This entails working with risk modeling teams, investment managers, and even customer-facing teams to guarantee that climate risks are well understood and incorporated into all relevant decisions.
✔ Evolution: CROs must remain up-to-date with the latest developments in climate science, policy, and regulation to ensure that the bank’s risk management strategies remain effective over time. They may need to engage with external experts and stakeholders to stay informed and adjust strategies as needed.
By integrating climate risks into the bank’s overall risk management strategy, collaborating with other departments, and staying current with the latest developments, CROs can help banks manage these risks effectively and safeguard their financial performance in the face of ongoing climate change.
Stay tuned for post #4 of the CRO series, where we’ll discuss another top concern of banks’ CROs.
