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Risk and Resilience: Embedding resilience to environmental risk in routine financing decisions

Why risk and resilience matters


Financial institutions and their regulators are all recognising that environmental and social issues are now increasingly material drivers of mainstream credit, market and operational risks. This is a major shift from their historical treatment as reputational risks. 

The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) has been a major driver of this trend. The TCFD recommends that firms use forward-looking scenario analysis to assess climate risks. This is a necessary reflection of the fact that both the physical risks of extreme weather events and the transition risks derived from the shift to a net zero carbon economy will not mimic historical trends. 

However, using scenario analysis to integrate environmental risks into routine financing decisions presents most financial institutions and regulators with new challenges. If these can be overcome, the terms on which capital is provided will take better account of the true environmental risks different business activities face. One powerful application is to change how financial institutions assess the resilience of investments in infrastructure to climate risks. 

 

What is CISL is doing about it?


Cambridge’s strengths across both the natural and social sciences give rise to opportunities for truly multi-disciplinary centres of excellence, such as the Cambridge Centre for Risk Studies and the Centre for Environment, Energy and Natural Resource Governance.  

Against this backdrop, CISL works with insurers, banks and investors to develop practitioner-owned methodologies that help industry address how to integrate environmental scenario analysis into their decisions and direct capital towards sustainable infrastructure. We advise central banks and financial regulators on appropriate actions they can take and we develop research insights that deepen our collective understanding of the links between environmental and social trends and financial risk.

 

Our work and thought leadership


New tools and analysis from CISL published in G20 report to help financial firms manage climate risk

11 July 2017 – For two years CISL has been a knowledge partner of the G20 Green Finance Study Group, with the resulting report, 'Enhancing Environmental Risk Assessment in Financial Decision-making', published at the end of the G20 summit. Kajetan Czyz, Programme Director, Sustainable Finance at CISL, discusses how the tools in the report aim to help financial firms carry out environmental risk analysis more effectively.

New tools and analysis from CISL published in G20 report to help financial firms manage climate risk - Read More…

Five ways to mainstream green finance now

11 July 2017 – How can the financial industry aid climate-related financial disclosures, enhance environmental risk analysis, and make better use of publicly available environmental data to analyse financial risk and inform decision-making on future investments, asks Dr Nina Seega, CISL Research Consultant and co-author of the G20 Green Finance Study Group’s background paper on Enhancing Environmental Risk Assessment in Financial Decision Making.

Five ways to mainstream green finance now - Read More…

Closing the protection gap: ClimateWise Principles Independent Review 2016

December 2016 – The ClimateWise Principles Independent Review 2016 of the six ClimateWise Principles finds a second year of improved scores for members of the insurance industry leadership group. Members have demonstrated their ongoing support for the zero carbon, climate-resilient transition yet the report finds a need for the industry to do more within its investment activities.

Closing the protection gap: ClimateWise Principles Independent Review 2016 - Read More…

Environmental risk analysis by financial institutions – a review of global practice

September 2016 – The G20’s new Green Finance Study Group asked the Cambridge Centre for Sustainable Finance to serve as Knowledge Partner and make recommendations on how to integrate environmental risk into mainstream financial decision-making.

Environmental risk analysis by financial institutions – a review of global practice - Read More…

Feeling the heat: An investors’ guide to measuring business risk from carbon and energy regulation

May 2016 – The COP 21 climate agreement indicates a growing global consensus for action on climate change. In response, this research report assesses the impact of future carbon- and energy-related regulation on the most sensitive industries and geographies at a company level.

Feeling the heat: An investors’ guide to measuring business risk from carbon and energy regulation - Read More…

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Rewiring the Economy

This work relates directly to Rewiring the Economy, CISL's ten-year plan to lay the foundations for a sustainable economy.

Task 4: Ensure capital acts for the long term

Task 5: Price capital according to the true costs of business activities

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Severe flooding in a residential area of Baton Rouge, LA; credit: U.S. Department of AgricultureCreative Commons Attribution-2.0 Generic