This CFRF guide aims to help financial firms understand the risks and opportunities that arise from climate change, and provide support for how to integrate them into their risk, strategy and decision-making processes. As part of this, the guide considers how firms can plan for the impact of climate policies over different time horizons and assess their exposure to climate-related financial risks so that they can adapt their businesses in response. This overarching summary document sets out:
• Why it is important for financial services firms to consider climate change
• Background on the CFRF
• Information about the CFRF guide, how it can be used and summaries of the four chapters
• Next steps for the CFRF
This chapter on Risk Management provides practical guidance on how to address climate risks within financial institutions. It describes good practices but is also designed to act as a guide for those who have yet to fully consider the topic, where case studies are included they are consistent with this approach. It has been produced by the Risk Management Working Group of the Climate Financial Risk Forum.
The guide is aimed at banks, asset managers and insurers of all sizes. Some of the information in this guide may be more or less relevant for different firms depending on the scale and nature of their business and their risk profile.
This climate change Scenario Analysis chapter provides practical guidance on how to use scenario analysis to assess climate-related financial risks to inform firms’ strategy and business decisions. It was written by a cross-industry working group under the auspices of the Climate Financial Risk Forum.
This chapter is aimed at banks, asset managers and insurers of all sizes, and may be of interest to other institutions, such as pension schemes. It describes current industry good practices but is also designed to act as a guide for those firms who have yet to fully consider this topic.
The Disclosures chapter provides practical recommendations for financial institutions wishing to meet good practice expectations for public climate-related financial disclosures. It draws on good practice examples from industry as well as guidelines set by relevant and respected industry bodies. It has been produced by the Disclosures Working Group, which is part of the PRA/FCA Climate Financial Risk Forum, and is designed to be read in conjunction with outputs from other cross-industry working groups convened by the Climate Financial Risk Forum, in particular the Scenario Analysis and Risk Management chapters.
This chapter comprises a set of recommendations for how financial institutions and regulators can start to deliver a step change in aligning private sector financial flows with climate goals, both for increasing resilience to physical climate change and to supporting the transition to net zero, drawing on examples of good industry practices. In examining approaches to a capital allocation framework, new technologies, financial instruments and practices, it is designed to complement chapters describing components of a risk framework including climate change-related financial disclosures, scenario analysis and risk management.
To this end, the NGFS committed to publish the first-of-its-kind Guide on climate scenario analysis for central banks and supervisors. The forward-looking nature of climate risks and the inherent uncertainty about future events make it difficult to assess them using standard risk modelling methodologies. Scenario analysis offers a flexible ‘what-if’ methodological framework that is better suited to exploring the risks that could crystallise in different possible futures.
This Guide provides practical advice on using scenario analysis to assess climate risks to the economy and financial system. It is based on the initial experiences of NGFS members and observers and also aims to progress discussion on the methodologies used. While mainly aimed to central banks and supervisors, many aspects of the Guide might also prove informative to the wider community.
The Guide provides a four-step process. It recognises that this field is still relatively in its infancy and there is no universally agreed approach.
The NGFS Climate Scenarios (the scenarios) have been developed to provide a common starting point for analysing climate risks to the economy and financial system. While developed primarily for use by central banks and supervisors they may also be useful to the broader financial, academic and corporate communities. This document provides an overview of the key transition risks, physical risks and economic impact of climate change.
For the first time, the Bank of England (the Bank) is publishing this report on climate-related financial disclosure, setting out its approach to managing the risks from climate change across its entire operations, and the steps taken to improve the Bank’s understanding of these risks.
The GARP Risk Institute recently conducted its second annual global, cross-sectoral survey on climate-related financial risks, and now presents the results in a comprehensive report. Through the lens of governance, strategy, risk management, metrics and scenario analysis, the report examines how firms measure and manage the risks and opportunities associated with climate change.
Climate disclosures within the Annual Report – An Australian focus is a guide to help businesses communicate the impacts of climate on their business models, strategy, financial performance, and future prospects in their Annual Reports and Financial Statements. It will help you navigate the different disclosure requirements and recommendations applicable in Australia that may be impacted by climate risks.