“With the right tools and influence, the financial sector can drive business resilience and unlock climate-related opportunities – but only through strong governance and strategies informed by dynamic scenario analysis”, says Lucyna Stanczak-Wuczynska, Chair of the Supervisory Board, BNP Paribas Bank Poland, and Independent Non-Executive Director.
Lucyna is also the Chair of the Advisory Board for Chapter Zero Poland and Chair of the Climate Governance Initiative’s Financial Sector Steering Committee.
Holding sway over a resilient future
Financial sector institutions hold significant influence to help shape strong, stable economies through the capital they deploy and manage, as well as the products and services they offer. To use this influence effectively, institutions must map both their opportunities and risks – including systemic risks like climate change – embedding these into their respective risk appetite matrix, portfolio steering, capital allocation, and their business strategy to protect and build value. From here, they can shape their business proposition by supporting their clients’ sustainable transitions, resilience building and future-forward decision-making.
Shifting financial flows, i.e. directing private finance (whether lending, investment or insurance) towards lower carbon intensive businesses and more sustainable investments, is a way to avoid the “too little too late scenario” – a high transition and high physical risk climate and nature scenario. In practice, this could include: selling tailored financial products such as green bonds or sustainability linked loans; funding environmental solutions or adaptation projects; investments that prioritise low-carbon and resilient portfolios, helping finance renewable energy or energy efficiency projects.
“Today there’s clearly a much wider spectrum of investment opportunities, some of them growing exponentially – electromobility, regenerative agriculture, clean fuels, green mortgages, biodiversity, cleantech innovations, industrial decarbonisation, circular economy – to name but a few. ”
Since banks’ risk portfolios are reflective of those of their clients, an effective form of climate response is to deepen client engagement and to seize the unique opportunity available to them, also in expanding a bank’s role beyond traditional lending to acting as a sparring partner for businesses embarking, or already on, a path towards decarbonisation or climate adaptation. As clients across sectors face increasing pressure to reduce emissions and adapt to climate impacts such as extreme weather events, loss of natural resources and sea-level rise, banks can provide their clients with guidance, advisory or technical assistance offering expertise in climate risk management and mitigation, mapping decarbonisation pathways, structuring green finance trajectory, and supporting emission calculations.
Credit institutions that are investing now to build their wider business proposition, accompanied by analytical and advisory capability (including with the use of AI) will see it pay off in the long run. They stand to gain competitive advantage by being the trusted partner and positioning themselves as market leaders, unlocking new revenue streams as the demand for climate-aligned financial services continues to grow.
Despite geopolitical pushbacks and strong headwinds against ESG – some of the factors leading to the closure of Net Zero Banking Alliance – it seems evident that leading financial institutions on their own net zero journey and those at the service of their clients in this capacity- will continue to expand their sustainable financing proposition and address growing financially material climate relate risks.
There is still momentum: for example, between 2022-2024 BNP Paribas, the largest banking group in the EU, dedicated EUR 179 billion to support clients in their climate transition and extended the target to EUR 215 billion in 2026. Across the world (including in the Emerging Markets and in Central Europe), BNP Paribas continues to develop cutting edge expertise and resources that help their clients realise their climate transition investment plans and support innovations: both of which are vital for the future success of low-carbon technologies and boosting long-term global competitiveness. This is an effective blueprint for other institutions to follow.
The economic imperative
Investing in climate solutions, including adaptation, is not just a moral or environmental imperative – it’s an economic one. It provides a long-term strategy for maintaining competitiveness in a rapidly evolving economic landscape. Fortunately, many private players consider climate resilience as not only necessary for the sustainable continuation of their activities, but also as an economic opportunity and a competitive advantage.
“…many private players consider climate resilience as not only necessary for the sustainable continuation of their activities, but also as an economic opportunity and a competitive advantage.”
In Europe (with its ambition to be the first net zero continent in 2050) energy policies aim to both reduce greenhouse gas emissions and strengthen energy sovereignty by reducing dependence on fossil fuel imports. The recently launched Clean Industrial Deal has set a new EU global climate vision and made decarbonisation one of the key growth drivers so the direction of travel is unchanged. For many European clients, climate resilience is now fully embedded in their strategies and their long-term business vision.
As more industries transition from fossil fuels and improve natural resource management practices we see them enjoying lower energy and resource costs, enhanced asset value, a better position in their respective supply chains, benefits of customers’ recognition and improved access to financing, particularly from multilateral institutions prioritising green finance. These varied and rapid developments present ever-evolving opportunities, which will have long-term impact on a firm’s competitiveness and potential to create value.
Managing the future: from compliance to strategy, and good governance
Climate scenario analysis and transition planning is a vital tool for companies and financial institutions to understand how businesses might perform under different plausible future climate and nature scenarios. It is becoming a key tool to assess the financial impact of climate related risks – including physical and transition risks.
For financial institutions it is a major tool to assess the resilience of their business models, to identify what is financially material, to better assess the portfolio quality and hence to manage it more efficiently, and finally to estimate future capital allocations. It supports regulatory compliance and disclosure and help prevent reputational damage.
“It is… critical to treat climate and nature scenarios as a major tool to inform strategic decision-making, rather than just being a risk management tool.”
Putting in place robust climate scenario analysis remains important for financial regulators, but can be a challenge for banks – lack of granular data, tools, and uncoordinated methodologies to quantify these risks effectively, being the major stumbling blocks. Wise coordination across jurisdictions and banks can improve access to this critical information infrastructure and shared data, models, and capabilities that underpin credible transition planning and resilient financial decision-making.
Climate and nature scenario analysis and transition planning serve financial institutions as a key instrument to manage climate and nature-related risks, support portfolio decisions, and ensure regulatory compliance. It is therefore critical to find ways to develop and improve climate and nature scenario analysis tools to inform strategic decision-making since it should enable the boards of financial institutions to shape strategies that are adaptive and resilient.
Accountability at board and executive level will be essential in ensuring that climate adaptation and resilience are integrated throughout a business’s strategy and operations. It makes the case for the business leadership agenda. Such expectations are also now coming from investors and assets managers. It means that in the boardroom there is a need for sufficient and dedicated expertise, time and resources. The tone from the top and the right organisational culture are more important than ever before.
Learn more about scenario analysis and planning at CGI and Chapter Zero‘s upcoming webinar dedicated to the subject, on 26 November from 09:00-11:00 (GMT).
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