The responsibility for managing climate risk is increasingly falling to Chief Risk Officers (CROs) at banks, but a clear organizational picture of how Here’s being handled remains elusive, according to a recent benchmarking exercise. The study, conducted by Risk.net, found that even as 81% of banks identify their CRO as accountable for climate risk, the actual size and structure of dedicated climate risk teams vary dramatically.
The median size of central climate risk teams is just four full-time employees, with a mean average of eight. However, the range reported extends from 50 employees down to zero, suggesting a wide disparity in how institutions are prioritizing and resourcing this growing area of concern. This fragmented approach raises questions about the effectiveness of climate risk management, with the report noting that “everyone owns climate risk – which often means no-one does.”
The findings come as regulatory pressure mounts for financial institutions to better understand and disclose their exposure to climate-related risks. Australia’s financial institutions, for example, are preparing to adopt the International Sustainability Standards Board (ISSB) climate-related reporting standards, a significant shift in risk reporting practices. APRA’s CPG229 Climate Change Financial Risk guidance and SPG 530 Investment Governance guide have already elevated climate and sustainability-related risks to the same level of importance as more traditional risks like market and liquidity risk. ASIC is also increasing its scrutiny of potential greenwashing.
Beyond regulatory compliance, superannuation funds are facing increasing expectations from shareholders, customers, and society to proactively address climate risks. Chris Nott, a partner at Baringa, notes that climate risk presents a new level of complexity for CROs already managing regulatory changes and member expectations around performance and sustainability. He highlights a “two-speed” internal maturity path, where investment activities and disclosures are progressing faster than broader enterprise understanding and alignment on climate change as both a risk and an opportunity.
A recent survey by EY indicates that while climate and environmental risk remain a top-three concern for bank boards and CROs, its perceived importance over the next three years is decreasing. In the survey, 37% of CROs cited environmental risk as a top-five issue for the next three years, compared to 49% in the previous year’s research. This shift could indicate a recalibration of priorities as volatility and other risk profiles change, or potentially a diminishing sense of urgency despite ongoing regulatory developments.
Risk.net provides a platform for discussing the challenges of climate risk modelling and tracking regulatory changes. The organization’s benchmarking exercise aims to provide insights into how banks are approaching climate risk, but the wide variation in team sizes and accountability structures suggests a lack of standardization and a continuing evolution in best practices.