Development of a Climate Risk Management Framework

The Brief

The UK CRO of a large foreign bank needed support to integrate climate into their existing risk management framework and comply with PRA SS3/19 requirements. Our team of sustainable finance experts were tasked with supporting the development of our client’s climate risk capabilities including Governance, Training, Risk Management processes and Scenario Analysis.

Effectively integrating Climate Risk within an existing Risk Management Framework to support PRA SS3/19 Compliance

The Solution

The team’s comprehensive solution to our client’s challenge involved looking at:

• Culture and Awareness: We delivered training sessions to Executive Committee members and Senior Managers ensuring that it equipped them with a level of understanding to identify, monitor and assess climate risk within their UK operations
• Governance: We identified Accountable Executives and updated Senior Managers’ Statements of Responsibilities to incorporate Climate Risk
• Analysis of Climate Risk exposures: We looked across key business areas and developed climate heatmaps and climate risk metrics, including carbon intensive by sector and carbon intensity for the portfolio, as well as recommending thresholds for each
• Enhanced Quarterly Reporting: We created clear reporting that included climate metrics and other financial metrics in carbon sensitive sectors
• Scenario Analysis advice: We made scenario selection, stress methodologies and data collation recommendations
• Development of Risk Appetite: We worked with our client to create a statement for Climate Risk
• Reviewing processes: We supported the embedding of climate risk considerations into existing standards and policies
• Training and upskilling: We led the training of bank staff members to embed Climate Risk practices within the organisation

The Results

Our client now has effectively incorporated Climate Risk management within its existing Risk Management components, ensuring that Climate Risk is not only understood, but effectively managed and mitigated against, across the bank. With the development of an updated Risk Committee Charter, they are now able to carry out quarterly reviews of climate metrics across core clients. In addition, our team’s solution provides the bank with a clear roadmap to continue developing the framework and enhancing climate risk management standards across the organisation going forward.