UNEP FI Risk Centre Bridges Theory and Practice

The resource builds on existing climate and nature-risk related programmes, aiming to encourage a more holistic approach to sustainability challenges.

The UN Environment Programme Finance Initiative’s (UNEP FI) has opened a new risk centre centralising its resources on climate and nature risks, aiming to help members better identify and manage the ones that are financially material.

The centre will offer an integrated set of programmes that build on the legacy of UNEP FI’s piloting work on the Task Force on Climate-Related Financial Disclosures (TCFD) and Taskforce on Nature-Related Financial Disclosures (TNFD) – bringing global and regional financial institutions up to speed on risk-related topics and helping them further their sustainability journey.

“The risk centre will collate a wide set of resources for UNEP FI members, including tools, data sources, case studies, and other good practices on environmental risks, and will offer peer and expert discussion sessions on emerging topics such as new climate scenarios and evolving regulatory frameworks,” David Carlin, Head of Climate Risk and TCFD at UNEP FI, told ESG Investor. “In addition to leveraging the convening power of the UN, the risk centre will develop approaches and good practices in fields such as nature-related financial risk assessment and legal and regulatory risks through dedicated working groups.”

Initially bringing together UNEP FI’s work on nature and climate, the centre will extend its focus to cover other sustainability risks, such as pollution and social issues – including those relating to the Just Transition.

Its activity will take different forms. The centre will host working groups focusing on the development of risk management tools and technical skill-building workshops – with goals to implement emerging methodologies and risk management frameworks, and to enhance disclosure capabilities. Monthly webinars will also facilitate engagement between risk professionals and wider stakeholders, including central banks, supervisors and industry experts. In addition, a knowledge hub will share resources on assessing risks.

“By bridging theory and practice, the centre will equip financial institutions to make informed decisions, mitigate risks, and seize emerging sustainability opportunities,” UNEP FI said in a statement. “While the risk centre is primarily for risk management professionals, it will also serve as a resource for sustainability managers, corporate legal services, portfolio management and modelling, compliance, front office professionals – as well as those seeking guidance and information.”

Founded over 30 years ago, UNEP FI has been working with banks, insurers, and investors since 2017 to develop approaches and resources to help financial institutions identify, measure, disclose and manage climate-related risk, in line with the Financial Stability Board’s TCFD recommendations – which now form part of the International Sustainability Standards Board’s standards.

As members continue to work on aligning their business practices to sustainability goals, including through commitments to implement the Principles for Responsible Banking and the Principles for Sustainable Insurance, the new risk centre will aim to help them by providing access to technical expertise. It will focus on elements including stress testing, regulatory landscape, social and water-related waste, pollution and resource use.

“In the face of the triple planetary crises of climate, biodiversity loss and pollution, financial institutions are increasingly confronted with systemic risks that challenge traditional risk management frameworks,” UNEP FI added. “These crises interweave environmental, social and economic factors, creating a complex web of risks that can impact asset values, investment viability, credit risk and overall financial stability.”

Earlier this month, UNEP FI published its 2024 Climate Risk Landscape Report, which outlined the tools available to assess financial institutions’ physical and transition climate risks and boost their resilience to related impacts. The report also provided best practices, case studies and recommendations.

Connecting the dots

A key mission underpinning the creation of the risk centre is to foster a more integrated approach to sustainability issues. As such, UNEP FI will look to encourage financial institutions to think systemically about environmental risk, and identify and develop tools accounting for nature impacts in a more holistic way.

“The work going forward is to not think in silos about climate challenge and biodiversity, but as we consider different actions and approaches, to put those pieces together in a much more systems-thinking way,” said Carlin. “The risk centre shatters topic-specific silos. We see big reports coming out all the time both on the climate and nature side – each of these problems act on one other, and so solutions need to do so too.”Part of the work carried out by the risk centre will focus on finding connection points between policy and climate modelling, between nature strategies and sectoral pathways for sustainability, and between climate solutions and concerns. “Those are just some of the interlinkages,” Carlin explained.

The centre’s programming will give UNEP FI members and other financial institutions a stronger grounding across several areas. One of them is the use of scenarios, with goals to provide a better understanding in the context of exploratory work and stress testing. There will also be a deeper dive into the newly formed area of nature-related financial analysis, on which the TNFD has created the ‘LEAP’ approach – which stands for ‘locate, evaluate, assess and prepare’.

“We’ll be looking at some new types of risks, including legal, and the ways in which both companies and financial institutions need to more carefully consider their exposure to understand where their responsibility extends to in today’s world,” Carlin continued. “One of the great legacies of our programme has been exploring and developing tools. We’ll have about two dozen tool providers sharing approaches to nature and climate over the course of the year with participants, and will potentially build solutions ourselves.”In addition, UNEP FI will look to existing frameworks – including not just the TCFD and TNFD, but ongoing work around the European Sustainability Reporting Standards, and the International Sustainability Standards Board globally.

“Part of our work on this is focused on how to tie these things up,” said Carlin. “We’ve found that historically, regulatory reporting is a great way to bring these risk pieces together, both in getting high-quality and comparable efforts to them.”

Overall, Carlin and his team are hoping that the work and outputs delivered by the new risk centre will help accelerate UNEP FI’s vision to support sustainable finance and financial sustainability within its membership and beyond.

“By confronting environmental risks, financial institutions will more clearly see the imperative for transformative action,” he added. “Furthermore, effective risk management tools and insights will help them contribute to taking action and making progress on their sustainability journey.”

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