Climate change has already altered industries, and banks have not escaped its reach. Banks are finding that climate-related risks, both physical and transitional, are manifesting on their balance sheets. As with any risk, financial institutions that fail to effectively manage climate-change risks are more vulnerable to the rising tide of environmental hazards. What does recent research indicate about banks’ responses to the financial risks (and opportunities for investment) associated with our changing climate?
Bank of England
UK banks have achieved success in many areas, but when it comes to earning and retaining customer trust, they have fallen short. In an era of big bank failures, scandals and outright greed, public trust in the banking sector has been one of the main casualties. The good news is that it doesn’t have to be that way; banks can turn the tables and win back that crucial trust. But how?
Central banks, guardians of financial systems, consider multiple factors when determining policy; today, as countries suffer the effects of severe weather, central banks feel impelled to include the risks associated with climate change. Groups such as the Network for Greening the Financial System, which unites central banks to address climate-change financial risks and aids the private sector toward achieving a more sustainable future, allow central banks to pool their resources to combat this threat.
The financial crisis a decade ago exposed the considerable challenges of resolving large, globally active banks. In the United States, the Federal Deposit Insurance Corporation – which has insured deposits and resolved failed banks since the Great Depression era – is one of the agencies leading the resolution planning effort. The chairman of the FDIC discusses the Corporation’s current bank resolution tactics in a global environment.
Mainframe computers have enabled banks to manage huge amounts of financial data for nearly 70 years, but these legacy systems are today proving to be hindrances to progress. Lean fintechs are taking full advantage of today’s ground-breaking, agile technology, while established banks are struggling to transform their bedrock digital infrastructure for the new world. How are banks migrating to cutting-edge systems that will maintain them on their industry’s frontlines?
The stewardship responsibility of today’s bank has become more complicated in the light of climate change. Not only does a bank need to be cognizant of its responsibility to safeguard customer finances but also the future of the planet on which we all live. Green finance is an ever more significant influence on the decisions made by bankers determined to reconnect with the needs of society in more ways than just financial.
For banks, cloud computing appears to be the perfect answer to the growth of big data—and the necessity to manage and exploit it. This shared pool of information offers increased efficiency at lower cost, but adoption can be challenging for banks, with regulators expressing concerns especially regarding customer data protection. Fortunately, success is within reach through effective collaboration between banks, regulators and cloud providers.
“Equal pay for equal work” has been a familiar mantra, and law in many countries, for decades—but does reality coincide, especially in the world of finance? Various studies have revealed disturbing gender pay gaps, and the push is on for banks around the globe to disclose wage data according to gender and ethnicity, something many seem reluctant to do.
At the end of July, JPMorgan Chase revealed its plans to facilitate $200 billion in clean-energy financing through 2025. The announcement follows on from similar promises made back in 2015
It cannot be denied that we learn from mistakes of the past, and so the 2007-08 financial crisis is a lesson that keeps on giving. Ten years later, most banks are in stronger positions, but only because the crisis has changed all the rules on liquidity provision and has led to much tighter relationships between central banks, governments, funding markets and financial institutions.