Transparency and disclosure key for banks dealing with climate change risk

  • By Penny Pryor

The finance sector, and banks in particular, are seeking to communicate more information to their customers about the different climate change risks they might hold, in an effort to improve their overall exposure to the sector.

“The way those institutions are looking at it now is very much to be informed and not only [for] themselves to be informed, but to pass on that information to their customer,” head of consulting and risk management at CoreLogic Australasia Pierre Wiart, told the recent CoreLogic Moving ahead on climate change: Tackling climate risks in financial services panel.

Using the example of the banking sector and mortgages and how banks are already telling their customers about the value of their properties, he explained how many are also starting to explore how to pass on more climate change related information to the customer.

“Also, if there is incidental knowledge to be known about that property, which before was not taken into account, but now is taken into account. So, the impact of climate change, but more simply, the proximity of that house to the bush, or to a river or to the coast,” he said

“They are thinking of a way to convey [that] information to the consumer.”

The consumer also needs to be responsible, and able to appreciate the information being passed on and use it in their decision making process.

“So that's very much the step that we do see now happening. And on the back of that, obviously, there might be more analytics being developed,” Wiart said.

Also on the panel was executive director at specialist climate change advisory and investment firm Pollination, Zoe Whitton.

She agreed with Wiart that pricing isn’t the only tool available to financial institutions to deal with risk, with tools like communication and engagement also in the toolbox.

“To Pierre’s point you are seeing an additional set of tools being brought in that are not just modelling. People are finding new ways to deal with it in order to control risk across the system when … the price is not perfect,” she said.