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From Annual Review to Active Review Optimizing Your Portfolio Monitoring | January 20
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Climate Risk

Climate change presents both risks and opportunities - we can help you with both

Building confidence in an uncertain world

 

Climate change is having a significant impact on communities and economies around the world, threatening the profitability and sustainability of even the most resilient businesses. The effects of climate change vary widely across different sectors, representing an existential threat to some and an opportunity for others. For the banks supporting these businesses, standard approaches and historical data are of little value, which is why we’ve developed an approach — proven in predicting borrower vulnerability to COVID-19 during the pandemic — to help banks navigate the many complex scenarios resulting from climate change.

PI_Icons_Automated Data is the driver A forward-looking, data-driven approach to forecast the consequences for a specific business and suggest actions
PI_Icons_Policy Transition risks Identify how new climate change policies and transitions could impact credit risk and strategy in your loan book
PI_Icons_Climate_change Physical risks Understand the risks and potential impact of various climate change scenarios to become more resilient

2021 Executive Order on Climate-Related Financial Risk

"Banks with strong climate risk management systems and capabilities will not only bebetter prepared to withstand climate change events but will also have a better line of sight into the many business opportunities that will arise."
- Michael Hsu, Acting Comptroller of the Currency

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Data is the driver

Our Climate Impact Framework provides a forward-looking, data-driven approach to forecast the consequences of climate change for a specific business, suggest actions to mitigate possible risk, and target them appropriately. OakNorth gives banks the granular data they need to fully understand the impact of climate change and related policy actions on each borrower. This not only simplifies reporting and allows banks to take early action on any areas of concern, but also enables them to identify new opportunities for growth in supporting businesses as they transition to the green economy. The Framework examines multiple drivers specific to each industry subsector, providing an ongoing evaluation of the impact on the loan book over the short (5 years), medium (10 years) and long (20 years) term. This bottoms-up approach considers climate related financial risks across two distinct categories: Transition and Physical.

Transition risks

Transition risks can arise from the process of adjustment towards a low-carbon economy. A range of factors influence this adjustment, including climate-related developments in policy and regulation, the emergence of disruptive technology or business models, shifting sentiment and societal preferences, or evolving evidence, frameworks, and legal interpretations. Our modeling identifies how a low-carbon policy and technological transition towards mitigating climate change could impact the credit risk in a bank’s loan book, as well as its lending strategy.

Physical risks

Physical risks include extreme, localized events such as floods, fires, hurricanes, and heat waves as well as chronic changes in climatic patterns such as rising temperatures, change in precipitation, increasing sea levels and desertification. Such events, along with accelerating change, pose risks in terms of individual incidents of damage and disruption or chronic shifts in labor, capital, and other essential business drivers. Applying our Climate Impact Framework to your loan book enables you to understand the risks and potential impact of various climate change scenarios, enabling you to take a strategic view of your loan book and shape loan exposure to become more resilient.

OakNorth Climate Change Impact Framework

The growing risks posed by climate change are systemic and pervasive, impacting every asset class, as well as the profitability and long-term sustainability of some of the most resilient businesses.

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"Climate change risk will be a key focus area for regulators going forward, so banks need to be thinking about how they’ll address this - if they’re not already."

Bruce T. Richards
Former SVP at the Federal Reserve Bank of New York
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What We’ll Cover:

  • What makes our technology different
  • How rapidly you’ll see results
  • Ease of installation and cost benefits
  • Current customers and outcomes