We are “locked in” to climate warming of at least 1.5 degrees due to past emissions, and many climate impacts are already observable today, while others lie in the future.
All parts of the financial ecosystem, from capital markets to retail banking, from development finance to venture capital, and from wealth management to project development, will have exposure to climate risk. Many financial institutions have publicly stated their focus on both commercial and environmental sustainability, and while this principle has been promoted in recent years, in practice many institutions still struggle to apply the principle in practice.
Confronting climate change will mean not only decarbonizing our economy, but making all investments resilient to the repercussions of a changing climate. Financial institutions – whether public or private – have a vital role to play in this endeavor, but are only at the beginning to understand how climate change might impact their investment and sustainability objectives. Investors, banks and asset managers will need to deepen existing efforts to integrate climate change considerations explicitly and systematically across all levels of their strategies, programs and operations. Fully addressing and reducing climate risks will require it.
The concept of "climate risk" is often hard to quantify and difficult to communicate, yet fully addressing and reducing climate risk will require both.
Investment decision making increasingly demands awareness and understanding of the physical risks created by the changing climate. Appreciating the existence of these risks, of course, is only the gateway to the challenge of their assessment and mitigation. To rise to these challenges, investors and asset managers across all parts of the financial sector need greater information, awareness and tools to take the action, and ensure their investments are sustainable.
The Climate Risk and Resilience Initiative believes that both (i) broadening and deepening the conversation on climate risk across all segments of the financial sector, and (ii) providing information and products that can help financial decision-makers adopt robust climate risk management practices will help bring about changes in investment practices, and will lead to more sustainable – climate resilient – investment.
The Climate Risk & Resilience Institute’s mission is to equip and enable financial actors to identify, assess, manage, and mitigate their physical climate risks. CRRI aims to raise awareness and articulate the “what” and “why” of climate risk, but also to specifically and significantly advance practical and applicable discourse and solutions on the “how” to identify, assess, and quantify climate risks.
CRRI will achieve its mission by providing the knowledge, tools, and platforms for diverse set of financial actors necessary to improve their understanding of physical climate impacts. Advancing the discussion on “how” to manage climate risk will lead to better, more informed investment decision making.
The success of this work will influence behavior and decision-making on asset allocation and management, achieving more sustainable, resilient natural and physical capital stocks on which our economy and society rest.
We focus on building capacity for climate “risk management” and believe it is a necessary condition for sustainable investing. We recognize the clear linkages between risk management and disclosure and seek to build capacity for financial institutions to understand their risks better, and capture the opportunities to invest in resilience.
Our team knows how financial institutions work, and how they approach risk. We believe climate risk is not simply a management or corporate responsibility issue, but also a tangible issue for the parts of the institutions that manage risk. We believe that a financial institutions' credit and risk stakeholders are well positioned to enable the “mainstreaming” of climate considerations into financial institutions.
We primarily want to build capacity for integrating climate-risk issues into investment decision making. We believe a thorough understanding of physical climate risks will naturally lead to a greater willingness to address mitigation needs. Scaling up investments for both mitigation and resilience are necessary to ensure we are able to keep warming to below 2°, and that we can weather the weather better. A keen approach to climate risk management will help both efforts, and will ensure financing is truly "sustainable".
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