REPUTATIONAL AND LIABILITY RISK
- Changing consumer awareness and sensitivity to climate issues are risk factors for the banking industry that may lead to an institution suffering reputational damage in the event of non-compliance with regulatory expectations or scandals related to controversial activities.
INSURANCE RISK
- Groupe BPCE’s non-life insurance portfolio for individuals and professionals via its home, automobile and comprehensive professional insurance policies carries the risk of claims related to climate events. The policy portfolio is analyzed at regular intervals to identify and measure risks related to climate events (floods, drought, storms, etc.), to characterize their geographical distribution and adapt the underwriting policy.
- To reduce the balance-sheet impact of weather-related claims, the Group’s Insurance division transfers a part of its risks, including climate risks, to reinsurers worldwide through various reinsurance treaties.
REGULATORY RISK
- In order to limit climate change, administrative and legislative authorities are required to adopt new regulations.
These texts may be international (Paris Agreement), European (Taxonomy regulation) or national (French Climate & Resilience Act). - For example, the French parliament recently stepped up its demands with article 29 of the Energy-Climate Law requiring financial companies to demonstrate how their investments are aligned with a 1.5°C/2°C trajectory (see Paris Agreement).
From climate risk to financial risk
Climate Risks
Transition risks:
- Policies and regulations
- Technological progress
- Consumer preferences
Physical risks:
- Chronic risks (temperature increases, sea level rises)
- Risk of extreme events (floods, droughts, forest fires)
Climatic effects on the economy
Chains of economic transmission
Companies:
- Damage to tangible assets
- Stranded assets and increased CAPEX
Individuals:
- Loss of income
- Damage to property
Macroeconomics impacts:
- Capital depreciation
- Increase in investments
- Fluctuation in prices and productivity levels
- Other impacts on international trade, government revenues
Impacts on the financial system
FINANCIAL RISKS
Credit risk:
- Increase in corporate and personal defaults
Market risk:
- Stock market adjustments
Structural balance sheet risk:
- Increased demand of liquidity
- Financing risk
Insurance risk
- Increased losses
- Increased deficits
Operational risk
- Disruption of supply chains
- Business closures