As over 90% CROs see climate change as top emerging risk in next 5 years

By Peter Egwuatu

For the first time since the survey’s inception over a decade ago, climate change tops the list of long-term risks for banks, according to the 11th Ernst & Young, EY and Institute of International Finance (IIF) Bank Risk Management Survey.

The survey titled: “Resilient banking: capturing opportunities and managing risks over the long term” involves 88 financial institutions across 33 countries that provide insights into the changes in risk management seen globally during the past decade, and the major risks anticipated over the next 10 years.

According to the report: “More than nine in ten (91%) surveyed bank Chief Risk Officers (CROs) view climate change as the top emerging risk over the next five years. Only about half (52%) of CROs said the same in 2019.

“In the near term, almost half (49%) of CROs now view climate change as a top risk requiring their urgent attention over the next 12 months. In 2019, only 17% took that view. Beyond climate change, the most important emerging risk according to CRO respondents is the length and depth of the global economic recovery (83%).”

Benson Uwheru, Partner, Banking & Capital Markets Sector Leader, EY West Africa said: “In the past year, we saw climate change rapidly ascend to the top of banks’ long-term risk agendas for the first time. Bank boards and senior management must remain resilient across a broader set of dimensions as the world adapts to a post-COVID-19 world, and it’s clear that now includes climate-related risks, as well as other environmental, social, and governance matters.”

The survey finds that banks in practice are still maturing in their ability to assess physical and transitional risk exposures: just over half (54%) have a preliminary understanding of their climate change risk exposure and more than a quarter (28%) have a somewhat complete understanding.

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Anthony Oputa, EY Regional Managing Partner for West Africa, adds: “Beyond the issues around technology and data and the pace and breadth from digitization driving the entire business processes, business leaders and decision-makers now see climate change as one of the most critical and defining issues of our time that requires urgent attention.

“Financial institutions, which seem to be the most affected, have the responsibility to consider and treat every climate-related risk, and all other environmental, social and governance issues with all seriousness. The time to act is now amid the global economic recovery from the COVID-19 pandemic.”

In the near term, banks believe credit risk will be the No. 1 concern over the next 12 months – according to 98 per cent of CROs – amid the global economic recovery from the COVID-19 pandemic. Cybersecurity is perceived to be the second most urgent risk (80%).

Benson Uwheru further says that “While cybersecurity has long been the leading immediate concern for CROs, the COVID-19 pandemic changed the game. The breadth and depth of the pandemic’s shock to the global economy has brought credit concerns to the forefront for banks over the next 12 months.”

Vanguard News Nigeria