Financial Sector

Financial risks from climate change

Deloitte helps clients in the Financial Services Industry to include climate and environmental risks in their financial risk management practices, consistent with the evolution of their Environmental, Social and Governance frameworks.

Challenges

How do you protect and create value in the face of climate and environmental risks?

Today’s economy does not account for many climate and environmental (C/E) ‘externalities’. These external factors create material financial risks for firms, and a systemic risk to the economy. To better understand these financial risks and bridge the sustainable finance gap, Financial Services Industry (FSI) organisations need to bring together Environmental, Social and Governance (ESG) risk management with existing, more traditional, financial risk classes (e.g. credit, market and operational risk) to allow integrated risk management, quantification and pricing.

Our Financial Risks from Climate Change (FRfCC) team helps clients to better understand how to protect and create value in the face of these C/E externalities, specifically related to assessing and quantifying the financial risks and opportunities from climate change. We help clients to evaluate the C/E impact of capital allocation, calculate the range of expected losses from climate change related events, create appropriate metrics for monitoring and reporting, and establish the required investment needed to support climate resilience.

Deloitte brings together expertise across the strategic ESG risk landscape; C/E industry expertise, risk class management, and associated financial risk measurement capabilities. This combination facilitates the integration of ESG risk management with existing financial risk classes based on a close collaboration and shared understanding of the challenges faced – as firms shift gear to a more sustainable future.

Here are few topics where Deloitte can provide support and assistance:

  • Integrate financial risks from climate change into risk frameworks
  • Include climate and environmental risks in risk and portfolio modelling
  • Establish climate and environmental metrics, targets and/or thresholds
  • Conduct climate data availability, cleaning and analysis tests
  • Define climate data inputs for modelling
  • Assess possible climate data solutions
  • Benchmark, validate and create climate scenarios
  • Incorporate climate and environmental risks into stress testing

Our offerings

We can help you build strong frameworks within the area of financial risk, liquidity and funding in order to support a profitable growth.

  1. Strategy

    Integrate FRfCC into risk framework, structures, policies and processes

    We help our client establish an understanding of the financial risks from climate change (FRfCC) and integrate them in the organization as a whole. We also work with our client to bring financial risk management into climate risk identification & quantification processes, determine a baseline for climate target setting and define key risk indicators and data inputs for remodelling exercise.

  2. Risk and portfolio modelling incl. climate data

    Support climate risk management with risk & portfolio modelling

    We help identify, quantify risk & determine its impact by developing measurement tools and methodologies. We work with you to create tools to map investment portfolios against pre-agreed metrics & targets/thresholds. We develop frameworks / models for portfolio screening (positive & negative) and back-test models and methodologies for sustainable allocations. We conduct data availability, cleaning & analysis and define data inputs for modelling. We also provide support in assessing data solutions / vendors / suppliers.

  3. Climate scenarios

    Benchmark, validate and create climate scenarios

    We will develop, build portfolio and risk specific scenarios and evaluate its resilience to a range of plausible future socioeconomic and climate scenarios and pathways. We help generate and perform specific scenarios on a business, market, or portfolio. We perform “reverse” scenario analysis to determine the most impactful future direction and evaluate the materiality for a business model.

  4. Stress testing

    Incorporate climate and environmental risks in to stress testing

    We will enhance the existing risk modelling and stress testing capabilities to incorporate climate factors by identifying physical, transitional, liability, and broader ESG risks and by developing measurement tools and methodologies. We help stress portfolios for plausible, and relevant portfolio shocks and fat-tail climate risks.

  5. Performance management

    Manage climate and environment risks with metrics & targets/thresholds

    We assist financial institutions in developing tools to effectively report on the metrics, targets / thresholds related to the management of climate and environmental risks.

  1. Strategy
  2. Risk and portfolio modelling incl. climate data
  3. Climate scenarios
  4. Stress testing
  5. Performance management

Integrate FRfCC into risk framework, structures, policies and processes

We help our client establish an understanding of the financial risks from climate change (FRfCC) and integrate them in the organization as a whole. We also work with our client to bring financial risk management into climate risk identification & quantification processes, determine a baseline for climate target setting and define key risk indicators and data inputs for remodelling exercise.

Support climate risk management with risk & portfolio modelling

We help identify, quantify risk & determine its impact by developing measurement tools and methodologies. We work with you to create tools to map investment portfolios against pre-agreed metrics & targets/thresholds. We develop frameworks / models for portfolio screening (positive & negative) and back-test models and methodologies for sustainable allocations. We conduct data availability, cleaning & analysis and define data inputs for modelling. We also provide support in assessing data solutions / vendors / suppliers.

Benchmark, validate and create climate scenarios

We will develop, build portfolio and risk specific scenarios and evaluate its resilience to a range of plausible future socioeconomic and climate scenarios and pathways. We help generate and perform specific scenarios on a business, market, or portfolio. We perform “reverse” scenario analysis to determine the most impactful future direction and evaluate the materiality for a business model.

Incorporate climate and environmental risks in to stress testing

We will enhance the existing risk modelling and stress testing capabilities to incorporate climate factors by identifying physical, transitional, liability, and broader ESG risks and by developing measurement tools and methodologies. We help stress portfolios for plausible, and relevant portfolio shocks and fat-tail climate risks.

Manage climate and environment risks with metrics & targets/thresholds

We assist financial institutions in developing tools to effectively report on the metrics, targets / thresholds related to the management of climate and environmental risks.

Why Deloitte?

Global market leader

Deloitte has more than 300.000 employees working from across the globe. We are recognized as a global market leader within various risk areas – e.g. within cyber risk.

Dedicated specialists

We have a deep functional expertise within the various risk areas and the relevant sectors. We have considerable insight into the solutions successfully implemented at comparable companies and can therefore quickly identify the right solutions for you.

We work globally

As a starting point, we at Deloitte work in an integrated manner across borders. We mobilize employees all over the world depending on the required skills and the geography that needs to be uncovered.

Digital front runner

Our employees are leaders in the latest technology solutions. We use the latest technological opportunities in our solution design and are experienced in implementing technologies.

Reach out

Torben Winther

Partner

Thomas Clifford

Partner

Johan Philip Malan

Senior Manager