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Climate Risk and Opportunities: Day One of RMA’s Governance, Compliance, & Operational Resiliency Conference

The 16th annual Governance, Compliance, & Operational Resiliency Conference convened Monday. Over the next four days, GCOR XVI will virtually host leading experts from the financial industry and government agencies, to discuss the latest trends in operational risk, pressing regulatory issues, and the technologies and innovations transforming model risk management.

GCOR’s exclusive topic of conversation today was climate risk. Earlier this year, RMA established both the Climate Risk Consortium of large banks and the Regional Bank Climate Risk Consortium to address risks relevant to climate change. Consortium members, as well as regulatory and banking leaders, discussed the challenges ahead as we transition to a net-zero economy.

Here are some key takeaways from GCOR, Day One.

“We are already living in a climate change world.” That is the reality financial institutions must face, and increasingly adjust to, said David Carlin, the TCFD program lead for the UN’s Environment Program Finance Initiative, in a GCOR Fireside Chat.

Carlin told RMA Global Markets Risk and Securities Lending Director Fran Garritt that “even with the most ambitious plans, we are still going to see worsening climate change in the coming years.” Financial institutions must support “adaptation and resiliency for clients and communities around the world,” Carlin said.

Increasing regulatory attention and action, a “push from market actors,” and more awareness about the impacts of climate change have brought banks to the realization that “a better understanding of the future will give them opportunities to be successful and outgrow their peers.”

They also explain “why this topic is so commonly discussed and so central to how banks are operating in 2022,” Carlin said. He added that funding projects that mitigate climate risk would not only be economically worthwhile but also potentially lifesaving, “depending on the hazards being faced and individuals being impacted.”

Ask the right questions about climate risk. On Monday, Acting Comptroller of the Currency Michael Hsu provided an update on the OCC's innovative approaches to climate regulation. In conversation with RMA President & CEO Nancy Foster, Hsu summarized responses to OCC's climate guidance published in 2021 and outlined how the agency is working with other regulators.

The OCC created a Climate Risk Officer position in 2021, a role that was recently upsized to an office of climate risk. The panel offered sage advice for regional banks not yet subject to OCC climate regulations, suggesting these institutions become fluent and facile in climate risk concepts now.

Ultimately, for banks to succeed at mitigating climate risk, everyone needs to understand their role. The best things boards can do is ask good questions, and the panel suggested five for board members:

1) What is our overall exposure to climate change?
2) Which counterparties, sectors or locations warrant heightened attention and focus?
3) How exposed are we to a carbon tax?
4) How vulnerable are our data centers and other critical services to extreme weather?
5) What can we do to position ourselves to seize opportunities from climate change?

Find the opportunities within climate risk. As banks progress on their journey of managing climate risk, they need to seize opportunities as well as overcome challenges. That was a key message in the “Consortium Perspective” session, which featured members of RMA’s large bank Climate Risk Consortium.

“The regulatory environment is intense,” said Avani Parekh, head of enterprise risk governance at TD Bank. Financial institutions must “focus on managing risk, understanding vulnerabilities, and understanding their portfolios.”

“At the same thing you have to think about the opportunities,” Parekh said. “We are going to see business models change. We are going to go from heavy-emitting companies to less carbon-intensive operations. How can we better support our clients in the transition?”

“Think about where we are,” said Mary Obasi, head of global climate risk at Bank of America and chair of the consortium. The cost of reaching net zero by 2050, Obasi said, has been estimated at $5 trillion per year. “The scope and scale of the opportunity is huge,” she said.

“Collectively, we need to manage climate risk and reduce our emissions,” said Cory Firestone Weiss, director, climate risk & strategy, at SVB. “And we also need to support the technology that will help us decarbonize and increase efficiency.”


Related Links:

- GCOR XVI, DAY 1: Climate Risk and Opportunities 

- GCOR XVI, DAY 2: Assessing Emerging Risks; Managing Non-Financial Risks 

- GCOR XVI, DAY 3: Retaining Talent; Training Boards

- GCOR XVI, DAY 4: Taking Inventory of Model Risk