Banking principles unveiled to help financial institutions deal with climate change adaptability and reinforcing their resilience
The UN Principles for Responsible Banking (PRB) have released a new guide aimed at helping banks incorporate climate adaptation and resilience (A&R) into their risk frameworks and business strategies. The report, titled "Practical Guidance on Implementing Adaptation and Resilience for Banks," provides a roadmap and resources to support bank action on climate adaptation and resilience.
The PRB framework encourages banks to transition from mere risk awareness to proactive resilience measures that enhance their capacity to cope with and recover from climate shocks. It promotes the incorporation of climate risk audits to identify exposure to physical hazards, and aligns lending and investment portfolios with climate-resilient outcomes, moving beyond decarbonization to include adaptation measures.
The guide addresses A&R in three areas: Strategy, Assessment, and Action. In the Strategy area, banks are guided to qualify and quantify physical climate risk materiality and the A&R opportunity. In the Assessment area, banks are guided to define their strategy to manage physical climate risk and pursue the A&R opportunity. In the Action area, banks are guided to implement their A&R strategy through client engagement, policies, processes, and effective governance.
Banks operating in areas other than the real estate and agriculture & food sectors are encouraged to adapt the principles in the guidance to their own unique portfolios and client needs. The guidance has been informed by the real estate and agriculture & food sectors to provide concrete illustrations and detailed scenarios.
The report recommends ensuring the bank's A&R approach remains effective, responsive, and continually evolves through feedback loops and iterative refinements. Banks can help their customers become more climate resilient and finance the technologies, products, and services that enable people, businesses, and nature to become more resilient.
The PRB guidance builds on previous climate adaptation target setting guidance and is designed to help banks tackle A&R in stages based on an organization's evolving capacities, resources, and access to data and tools. As global temperatures are expected to rise over the coming decade, leading to escalating impacts from extreme weather events, floods, landslides, wildfires, droughts, and chronic climate impacts like rising sea levels, there is a growing demand for banks to develop strong A&R strategies and support A&R solutions across the real economy.
The UN Environment Programme has released the Adaptation Gap Report 2024, highlighting the need for urgent action on A&R. The PRB guidance aims to help banking professionals incorporate climate adaptation and resilience into their risk frameworks and business strategies, leading to more climate-proof portfolios and supporting the global transition to a climate-resilient economy.
The PRB guidance outlines a roadmap for banks to achieve advanced integration of A&R (Leading practice), and provides examples of actions and capabilities across three levels of practice: Getting started, Responsible practice, and Leading practice. The Principles for Responsible Banking (PRB) guidance has been launched today.
- The UN Principles for Responsible Banking (PRB) guide urges banks to progress from climate risk awareness to resilience measures, focusing on proactive coping mechanisms against climate shocks.
- The report offers a roadmap and resources to assist banks in aligning their lending and investment portfolios with climate-resilient outcomes, extending beyond decarbonization to incorporate adaptation measures.
- Banks are guided by the PRB framework to qualify and quantify physical climate risk materiality, and to implement A&R strategies through client engagement, policies, processes, and effective governance.
- The PRB guidance is designed to help banks transition to a climate-resilient economy, as they develop strong adaptation and resilience (A&R) strategies in response to escalating climate impacts like flooding, wildfires, and rising sea levels.
