#1. The Federal Reserve Gives U.S. Top 6 Banks a Climate Risk Test

On January 27, 2023the Federal Reserve published instructions for its inaugural climate scenario analysis (CSA) exercise, where it will determine the resiliency of Wall Street’s six largest banks in the U.S.  - Bank of America, Citi, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo - to climate transition and physical risks and the threats posed to their operations, loan portfolios and commercial real estate holdings.

While it has been reported that Federal Reserve Chairman Jerome Powell said the central bank will not get involved in issues like climate change that are beyond its congressionally established mandate, and vowed the institution will not become a “climate policymaker,” others feel strongly that the Fed has an important role to play regarding economic stability from climate-related financial impacts.

This exercise is the Fed’s first step to ensuring that the major U.S. banks understand and manage potential climate risks, including the risks from climate-induced events such as floods, wildfires, hurricanes, heat waves, and droughts and the impacts these events could have on their stability. The banks must submit their results by July 31and the Fed will publish aggregated data and insights from the exercise by the end of the year. This article from CNBC goes into greater detail.

#2. World Economic Forum Davos Publishes its Global Risks Report

The World Economic Forum hosted its annual meeting for 2023 this month bringing together top decision-makers from government, business, and society to address major global issues for the year ahead. One of the key topics for discussion called out their 2023 Global Risks Report, is the severe risk the world faces in the next 10 years if we neglect to stop climate change. The annual poll of 1,200 leaders across policy, business, academia and others highlights that four of the top five global risks are climate related. Here they are in order of severity:

1. Failing to mitigate climate change
2. Failure of climate adaptation measures
3. Natural disasters
4. Extreme weather events

Over a two-year horizon, extreme weather events are the second most severe risk and failure to curb climate change is the fourth most severe risk over this same time horizon.

#3. The US Securities and Exchange Commission (SEC) Plans Release of Final Climate Risk Disclosure Rule

April 2023 is the SEC’s target to release a final version of its climate risk disclosure rule. The proposed rule, which was published by the SEC last March, would require all companies listed on the exchange to disclose five major risks:

1. Climate related risks and the potential material impacts on their businesses, strategies and future expectations
2. Climate related governance and risk management processes
3. Scope 1 and 2 emissions, and Scope 3 emissions where material or when a reduction target has been set
4. Climate metrics in audited financial statements
5. Climate related targets, goals and transition plans

 As expected, the rule won both support and criticism from organizations and policymakers, with those on the opposing side criticizing the costs of implementing the new disclosure requirements.

#4 Jupiter Recaps The World’s Major Events of 2022

On January 12, 2023, Betsy Weatherhead and Pat Harr, Jupiter’s esteemed Science Fellows, recapped 2022’s major disasters in this blog post. As extreme weather events become more common due to climate change, the costs and loss of human life continue to rise. In fact, The Swiss Re Institute’s annual analysis of financial losses from natural catastrophes such as floods, hurricanes, and wildfires in 2022 estimated the total global economic loss coming in at $260billion, compounded by the major loss of human life.

#5 Institute of Management Accountants (IMA) Survey Finds 32% of Respondents’ Risk Management Process Ignores Climate Risk

The Institute of Management Accountants (IMA) survey findings indicate that the “environmental” component of ESG is increasingly ignored in corporate preparation, risk analysis, and planning. Nearly a third of respondents (32%) said their organization doesn’t consider climate change in their enterprise risk management. More surprising was that the finance role was reported as one of the least likely departments to participate in climate risk management. An important call-out is that the world’s largest companies are already releasing sustainability reports and Jupiter is seeing a convergence of ESG and climate risk analysis and reporting. However, small businesses are lagging behind fortwo main reasons: (1) they are not held accountable to the same regulatory disclosure requirements as their giant competitors; and (2) the pandemic and economic woes have put a damper on revenue growth. Jupiter is very excited for its upcoming launch that will put our best-in-science data and technology into the hands of more business leaders who understand the value and economic benefits of analyzing the business risks associated with climate change.

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Don’t forget to read the recent blog from Jupiter’s Chief Science Officer, Dr. Josh Hacker, on why regional climate models alone aren’t enough to make climate-related business decisions.

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Jupiter Intelligence is the global leader in climate analytics for resilience and risk management. For further information, please contact us at info@jupiterintel.com.