Financial institutions are under increased pressure from regulatory bodies to understand their environmental footprint and that of the companies they finance or invest in, otherwise known as financed emissions.
To help banks better assess climate risk Oracle today announced Oracle Climate Change Analytics Cloud Service. With built-in AI, the new reporting and analytics solution is designed to help financial institutions understand financed emissions, address statutory compliance, and mitigate climate change-related risks.
Jason Wynne, global VP for finance, risk, and compliance product development, Oracle Financial Services, said: “While banks work on climate-related financial risks that could affect them directly through their operations, they also need to be cognizant of their effect on climate indirectly through the businesses they finance. This dual responsibility requires the critical management of both risk and their own Net Zero commitments, which demands a significant effort from banks.
“Oracle Climate Change Analytics Cloud Service enables financial institutions to calculate, and analyze the impact of their carbon emissions, as well as climate targets on current and planned investments to get a full picture of the bank’s resiliency and risk around climate change.”
According to a National Oceanic and Atmospheric Administration report, the global average atmospheric carbon dioxide in 2023 set a new record high at 419.3 parts per million. The Financial Stability Board (FSB) adds that “these risks are global in nature, and will have effects across all entities, sectors, and economies….the breadth of climate-related risks – including their possible simultaneous occurrence across multiple jurisdictions and sectors – also has implications for the resilience of the financial system”.
With climate-related risks on the rise, it’s imperative that banks can better understand and account for the impact of their holistic portfolio of assets from both a regulatory and business strategy perspective. With pre-built calculation models and dashboards, the service can help save banks time and effort, address global climate change reporting requirements, and incorporate climate risk into their future risk and investment decisions.
‘Climate Risk’ assessment made easier
Banks are challenged to comply with multiple frameworks across several jurisdictions, and collecting and storing the data necessary to meet these requirements can be daunting. This is especially true when dealing with large and complex global customers. With built-in AI and Natural Language Processing (NLP) tools Climate Change Analytics can scour the internet for publicly available information about climate change initiatives by companies that the bank has invested in, which can aid in their overall assessment of climate risk.
Also according to CDP, a leader in aggregating global climate disclosures on banks’ portfolios, portfolio emissions are over 700x larger than direct emissions – and the risks of inaction are huge. Financial institutions must urgently decarbonize their portfolios, by disclosing the impact of their financing activities, setting science-based targets, and aligning all financing activity with the Paris Agreement.
Oracle’s new cloud service enables financial institutions to calculate emissions across various asset classes and jurisdictions. This encompasses not only greenhouse gas emissions across an organization’s operations and value chain but also financed and facilitated emissions from its customers. This allows for the computation of a climate rating at a counterparty level across the bank’s customer portfolio and incorporates climate change risk into other risk-management functions, such as project planning and risk audits and analysis.
Key feature capabilities of Oracle’s Climate Change Analytics Cloud Service include:
- Performing carbon accounting by calculating greenhouse gas emissions based on The GHG Protocol Corporate Accounting and Reporting Standard.
- Calculating and disclosing emission numbers for financed, facilitated, and avoided emissions and emissions removal based on the Partnership for Carbon Accounting Financials guidelines.
- Integrating climate risk into overall enterprise risk and investment decision-making with an in-house Climate Scorecard framework, probability of default (PD) and loss given default (LGD) models, and heatmaps.
- Accessing more than 100 prebuilt, cross-jurisdictional climate change reporting disclosures, analytics, and visualizations to address requirements for standards boards and regulators.
- Using advanced analysis to source, configure, store, and analyze customer climate change data with rich data models for analytics.
- Helping to reduce IT investment with cloud-native technology that can meet the ever-changing climate change reporting requirements.
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Tags: banking, climate change, ORacle