hi I'm Dary garam and this is what you need to know about climate risk climate risk in Broad terms relates to the economic Financial social environmental consequences that climate change and efforts to mitigate climate change can have but in more specific terms and especially as it relates to financial institutions it really falls into two categories it's either physical risk meaning the impact of extreme weather events such as tropical Cyclones and hurricanes or long-term changes in climate patterns or it can mean transition risk which is the impact that energy transition meaning the transition away from fossil
fuels and other greenhouse gas emitting activities can have now this is a very fast evolving discipline of risk and especially in the last few years central banks and Regulatory bodies around the world have been taking big efforts to make the financial institutions that they oversee um disclose uh quantify their exposure to climate risk and really incorporate it as a part of their risk management framework so building a proactive approach to climate risk management really involves going through the steps of any risk management framework that you need to establish it will starts at risk identification goes
into risk analysis and monitoring then risk mitigation so uh risk identification me meaning uh really identifying which of the companies that you're exposed to which geographical regions sectors or Subs sectors could be most vulnerable to physical and transition risk this is really the step that most of the financial institutions in the market are focused on right now beyond that comes risk analysis which is being able to run different scenarios assessing the financial impact from that scenario and being able to set limits based on uh the risk appetite that your organization may have um beyond that
comes risk mitigation because uh when a company is disclosing material climate risk uh to their investors and Regulators they will really need to report it alongside a plan to mitigate that risk climate risk really brings a lot of net new data needs to a financial institution um so transition risk involves really company level data that financial institutions may be used to handling and be more more familiar with but physical risk especially involves data sets that are very expansive and difficult to organize so that could be geospatially mapped forward climate projections it could involve macroeconomic data
it could involve physical assets mapped to companies and the resilience of these assets to physical risk exposures that they may have so this is quite a lot of data and it needs to be really brought together using climate data science to be meaningful so uh at Bloomberg we've done a lot of the work to bring together the company level data whether it's emissions data as reported and estimated uh that our clients would need for transition risk assessment and we bring that together with research from Bloomberg new energy Finance to be able to translate that into
the revenue at risk for a company based on its exposure to the energy transition we are also working on tools to help companies assess their exposure to physical risk and also be able to bring physical and transition risk together and translate that to financial impact because uh for climate risk to be really meaningful um across the market you need to look at it through the lens of the other risk management pillars and use it as a factor enhancing decision making in credit risk Market risk operational liquidity risk rather than just having it stay in its
own Silo I'm confident that we're going to see climate risk Frameworks around the globe evolve rapidly especially in the next 10 years um as Regulators start to make climate disclosures mandatory gradually and a lot of the is the gaps that we have today in terms of data availability and methodology consensus uh will be solved by Collective Solutions across the market I think it's a space to watch and we'll see a lot of this evolving you should see climate risk at a significant level of maturity at the end of that decade thank you for watching I'm
darney garam and this is what you need to know about climate risk [Music]
