Climate change is top emerging risk for banks in Asia-Pacific: survey

FOR the first time, climate change has topped the list of both long and short-term risks for banks in the Asia-Pacific, an annual survey by EY and the Institute of International Finance showed on Thursday.

Nine in 10 bank chief risk officers (CROs) surveyed view climate change as a top long-term emerging risk over the next five years, up from 59 per cent in 2019.

While this is consistent with the global result of the survey (91 per cent), bank CROs in the Asia-Pacific are even more focused on climate change in the near term, with 100 per cent viewing it as a top risk that requires their urgent attention over the next 12 months.

This compares to just 49 per cent of CROs globally who view climate change as a top short-term priority.

The survey found that Asia-Pacific banks in practice are "still maturing" in their ability to assess physical and transitional risk exposures, and that sourcing and managing climate risk-related data remain a challenge.

While 80 per cent of bank CROs reported having a preliminary understanding of their climate change risk exposure, only 20 per cent said they have a "somewhat complete" understanding.

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David Scott, EY Asia-Pacific financial services risk management leader, said: "The greater immediacy that Asia-Pacific banks' CROs are placing on climate change risk over the next year, compared to the global average, reflects the urgency that regulators across the Asia-Pacific region have placed on climate risk management capabilities, as well as a heightened focus by investors and shareholders on disclosures."

Cybersecurity was perceived as the second-most urgent risk for banks in the region in the next 12 months (89 per cent), followed by credit risk linked to economic uncertainty (67 per cent).

Greater technological resilience also came about as a result of banks accelerating their digital transformation in light of the pandemic.

"Over the next decade, the crossover between talent, data and technology may be at the front of Asia-Pacific banks' ability to survive new challenges and continue to thrive," said Douglas Nixon, EY Asia-Pacific banking and capital markets consulting leader.

The survey, in its 11th edition, involved 88 financial institutions across 33 countries.