C Citigroup Inc

By Kristin Broughton 

Chief risk officers of financial institutions are taking initial steps to evaluate the threat of climate change, but weighing the dangers posed by a warming planet isn't yet a standard industry practice.

Twenty-six percent of banks and financial firms say they have established dedicated teams in their corporate risk or sustainability offices for evaluating climate-related risks, according to a survey by the Global Association of Risk Professionals. The survey included 27 banks and asset management firms with about $20 trillion in collective assets.

The finding comes as banks face increased scrutiny from investors and regulators over how extreme weather or environmental regulations could affect their bottom lines.

The Financial Stability Board, an international group of financial regulators, in December 2015 established a task force to create voluntary guidelines for disclosing environmental risks. An increasing number of financial firms have adopted those guidelines.

Last year, 48% of banks published information about board-level oversight of sustainability issues -- one of the recommended areas of disclosure -- compared with 34% three years ago, according to a report published this month by the FSB's Task Force on Climate-Related Financial Disclosures.

For many companies, environmental issues -- once the territory of corporate sustainability offices -- could soon start fall under the purview of corporate risk managers as they become a bigger priority, according to Jo Paisley, co-president of GARP's research institute.

"I don't think you want it corporate-responsibility led," Ms. Paisley said. Instead, it should be integrated into standard risk management controls, since corporate risk divisions are responsible for protecting the company's core business units, she said.

Banks should consider creating working groups with executives across several divisions to assess the impact of climate change on their core businesses, Ms. Paisley said.

Citigroup Inc. this year established a working group to integrate climate issues into its risk management controls. The group was created by the direction of the bank's chief risk officer, Bradford Hu, in response to the TCFD's recommendations, as well as an increasing number of regulatory inquiries on climate-related matters, executives said.

"This has really grown in importance and focus at the top of the house," said Eliza Eubank, Citi's global head of environmental and social risk management.

The New York bank in November published its first climate report under the TCFD guidelines. It has also worked with several other big banks to develop pilot models to assess how various planet-warming scenarios could affect the underlying performance of loan portfolios.

The efforts have helped the bank understand how it could be affected if its borrowers are negatively affected by climate change, executives said. The modeling project, in particular, has also provided a starting point for future discussions with borrowers about the climate-risk controls they have in place, according to the company.

"It's just a baby step into a big new world of climate risk," Ms. Eubank said.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

(END) Dow Jones Newswires

June 14, 2019 15:14 ET (19:14 GMT)

Citigroup (NYSE:C)
Historical Stock Chart
From Mar 2024 to Apr 2024

Citigroup (NYSE:C)
Historical Stock Chart
From Apr 2023 to Apr 2024