In the Hindu BusinessLine on 5th May, Dr. Arindam Bandyopadhyay, Dean Education & Associate Professor of National Institute of Bank Management writes an insightful and thought-provoking piece on climate change risk and bank sustainability.
He calls for lenders to reevaluate their risk assessment models and adopt sustainable finance as extreme weather events become more frequent, jeopardizing financial stability. Banks must recalibrate their rating assessment and business model tools to both remain profitable and benefit the environment in the long run. Such situations can be dealt with with a concerted response from the coalition of parties at both global and local levels. Further, he describes the nature of climate change risk as “green swan” events and the repercussions it can have on lives and livelihoods, investments, financial assets, employment, and wages. He also lays out assessment approaches to assess the financial repercussions climate risk can have on the economy and businesses, suggesting the need to factor it into credit rating models.
Climate change risk must be assessed and integrated into bank governance, risk assessment, scenario analysis, and disclosures. Best-practice banks around the world have begun performing portfolio stress tests to determine the impact of rising climate risk events on their loan portfolios.
We need to change the frameworks with which we approach risk assessment, making them more about stability rather than growth and more.
Read on to learn about how banks can proactively deal with climate change threats.