Climate capability building is mission critical for banks

As the impacts of climate change become increasingly evident, the financial sector, particularly banks, must adapt to a new reality. Building climate capability within banks is no longer a choice but a mission-critical necessity. Here’s why enhancing climate capabilities is imperative for today's banks.

The evolving nature of climate change and its profound impact on financial systems underscore the urgent need for climate training. As climate risks become more complex and pervasive, banks must ensure that their employees are well-versed in the latest climate science, regulatory requirements, and risk management techniques. Effective climate training programs will enable bank employees to identify, assess, and mitigate climate risks efficiently. Additionally, such training fosters innovation, enabling banks to develop new financial products and services that address climate change. Investing in continuous climate education ensures that banks remain agile and responsive to the rapidly changing environmental landscape.

To effectively build climate capabilities, banks must invest in upskilling their workforce across all levels. This means providing comprehensive climate education and training programs to equip employees with the knowledge and skills needed to understand and manage climate risks and opportunities. Upskilling should cover various aspects, from the basics of climate science to the specifics of climate-related financial risks and sustainable investment strategies. By empowering employees with this knowledge, banks can ensure that climate considerations are embedded in every decision-making process, from frontline customer service to executive-level strategic planning. This holistic approach to upskilling helps create a culture of sustainability, fostering innovation and resilience within the organization.

Board members and executives play a crucial role in steering the strategic direction of banks, and their decisions can significantly influence how well the bank manages and mitigates climate-related risks. Therefore, it is imperative for board members to receive specialized climate training. Here’s how board-level training should be structured:

What executive and board-level training should entail:

• Climate science fundamentals: Training on the basic principles of climate science and the potential impacts of climate change on the economy and financial sector.
• Regulatory landscape: Detailed briefings on relevant climate-related regulations and reporting standards such as TCFD, CSRD, SEC, and ISSB.*
• Strategic integration: Guidance on how to integrate climate considerations into the bank’s overall strategy, risk management, and decision-making processes.

By ensuring that board members and executives are well-informed about climate issues, banks can enhance their strategic oversight and governance related to climate risks and opportunities.

Front-line staff are the face of the bank and play a crucial role in implementing climate-related initiatives and engaging with clients. Climate training for front-line staff is essential and this is what it should entail:

What front-line staff training should entail:

• Client communication: Training on how to commercialize the discussion of climate-related products and services with clients, emphasizing their benefits and relevance.
• Product knowledge: In-depth education on sustainable finance products such as green bonds and sustainability-linked loans to ensure staff can confidently promote these offerings.
• Climate risk fundamentals: Basic training on climate risk principles to help staff understand the potential impacts of climate change on financial products and client portfolios.

Empowering front-line staff with climate knowledge helps banks identify the commercial opportunities through better advisory service and adoption of sustainable financial products.

Risk management teams are at the forefront of identifying, assessing, and managing climate-related risks. Specialized climate training for these teams should include:

What risk management team training should entail:

• Climate risk assessment: Training on methodologies and tools for assessing climate risks, including scenario analysis and stress testing.
• Regulatory landscape: Detailed education on regulatory requirements and standards related to climate risk management to ensure compliance.
• Risk integration: Guidance on how to incorporate climate risk considerations into the bank’s broader risk management frameworks and processes.

By enhancing the climate capabilities of risk management teams, banks can better identify and mitigate climate-related risks, ensuring long-term resilience.

Adapting to the inevitability of a climate-challenged world requires banks to embed lasting climate capabilities. Banks must carefully design and deliver climate training to effectively integrate climate considerations into their core operations, from credit risk assessments to strategic planning and product development. Embedding lasting capabilities means that banks will be well-positioned to be successful on ambitious climate commitments and be resilient in the face of future climate-related challenges, signaling trust for clients looking for a partner that understands the climate crisis and can support them through the transition.

In a world increasingly shaped by climate realities, banks stand at a pivotal juncture. The imperative to build robust climate capabilities is clear: it not only safeguards the financial stability of banks but also positions them as leaders in the transition to a sustainable economy. By investing in climate training, upskilling their workforce, adhering to global sustainability standards, and embedding enduring capabilities, banks can navigate the complexities of climate change with confidence. The journey towards a climate-resilient future is challenging, but for banks, it is also an opportunity to innovate, lead, and make a lasting positive impact on the global economy.

_{This article was supported by Zacharias Malik, Assistant Manager, ESG Services.}

_{* TCFD: Task Force on Climate-Related Financial Disclosures; CSRD: EU Corporate Sustainability Reporting Directive (CSRD); SEC: U.S. Securities and Exchange Commission, and ISSB: IFRS International Sustainability Standards Board}.

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