Financial Sector Facing Increased Climate-Related Financial and Litigation Risk

22 September 2017
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Key takeaways

  • The financial sector is facing increased criticism over its management of climate change related financial risk.  In the last week, a coalition of investors have written to major banks demanding better disclosure on climate risk in the wake of Hurricane Irma.  This follows a landmark court claim filed by shareholders against Australia’s Commonwealth Bank in August regarding its lack of disclosure regarding climate-related financial risk.
  • These issues have gathered momentum since the adoption of the Paris Agreement on Climate Change and following the June 2017 recommendations of the G20’s Task Force on Climate Related Financial Disclosures.
  • Whatever the regulatory environment, banks and other financial institutions increasingly need to pay attention to climate risk, particularly given their mid- to long-term lending portfolios.  Building climate risk management into existing risk management practices will help inform strategic decision-making and enhance long-term investment value, as well as help manage the emerging litigation risk in this area.