Climate Change Is A Top Concern For Banks, EY And IIF Survey

According to the media report, the survey of 88 financial institutions across 33 countries provides a window into the changes in risk management seen globally during the past decade and the major risks anticipated over the next 10 years.

More than nine in ten (91%) of surveyed bank chief risk officers (CROs) view climate change as the top emerging risk over the next five years.

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, according to the report.

Beyond climate change, the most important emerging risk, according to CRO respondents, is the length and depth of the global economic recovery (83%).

Mark Watson, EY Americas Financial Services Organization Board Matters Deputy Leader, said, "In the past year, we saw climate change rapidly ascend to the top of banks’ long-term risk agendas for the first time."

He added, "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."

According to the report, in the near-term, banks believe credit risk will be their No. 1 concern over the next 12 months—according to 98% of CROs—amid the global economic recovery from the COVID-19 pandemic.

Cybersecurity is perceived to be the second-most urgent risk (80%).

Andrés Portilla, Managing Director, Regulatory Affairs at the IIF, says, "While cybersecurity has long been the leading immediate concern for CROs, the COVID-19 pandemic changed the game." He adds, "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."

The report concluded with additional key survey findings, which include:

Almost one in three (29%) banks now believe they can manage down the costs of controls over the next three years by using data and technology to improve risk management.

Seven of the top 10 emerging risks, according to CROs, relate to technology and data, including the pace and breadth of change from digitization (68%), industry disruption due to new technologies (68%), and obsolescence and legacy systems (62%).

Based on lessons learned from the COVID-19 pandemic, 93% of CROs expect to see the introduction of new or additional regulatory requirements for operational resilience, and 60% of CROs expect the same for financial resilience.

CROs expect their banks to speed up their digital transformation even more, for example by automating more processes (88%), modernising their core technology platforms (66%), and giving customers better insights (64%). 

By Sumita Pawar