Managing a climate at risk

Integrating our environmental, social and governance (ESG) approach into the strategy creates an opportunity to better serve our customers. A key element of our ESG principles is the strategic and risk-based approach we take to managing various risks and opportunities from climate change.

"I get to work with great people across different teams to set and execute on our strategic priorities. I genuinely believe the work I am doing is making a difference to our future.” – Kate Oswald, Head of Climate Risk, ANZ

But how does a large financial institution think about climate risk? After all this isn’t just an issue of concern to us and our customers and shareholders – but the entire community.

As a bank, ANZ has been assessing and managing climate risk for some time and our understanding of climate-related risks continues to evolve and mature.

In November ANZ’s board elevated climate to a material risk. That means climate risk is now assessed, managed, monitored and reported on-par with risks such as credit risk. It is also considered to be a driver of other risks within our risk management framework (such as credit risk or non-financial risks).

Kate Oswald was appointed Head of Climate Risk to strengthen our approach in this area. She has been focused on working with key stakeholders across the bank to develop ANZ’s approach to climate risk, deliver on key foundational initiatives and build a team of subject matter experts.

I recently spoke to Kate about how climate risk impacts ANZ and our customers, the current regulatory landscape and her own career path.

KEVIN CORBALLY: Kate, can I start with a very basic but important question, what do we mean by climate risk and can you talk about it impacts ANZ and our customers in day-to-day life?

KATE OSWALD: Our most material climate risks arise from lending to large-emitting business customers, which contributes to credit risk.

These large-emitting businesses and other customers may be affected by physical or transition climate-related risks. Some examples of how physical risk could impact our customers are through changing climate conditions and extreme weather events such as storm or fire damage to their property, disruption to the operation of their business and potentially impacts to the cost and availability of insurance.

From a transition risk perspective, some examples of customer impacts include changes to the regulatory and policy environment in which our customers operate, disruption from new technology, and changes in consumer and business demand towards low carbon products and services.

Climate risks may also indirectly affect a customer through, for example, impacts to its business supply chain and customer base. This is why it’s important we engage with our customers regularly.

KEVIN CORBALLY: Having climate as a material risk is an important step because it helps us bring organisational focus and discipline in considering the risks of climate change as we set our strategy and to meet regulatory requirements and mandatory disclosure obligations.

It also helps us with strategic planning and to further develop our capability and expertise. But the climate risk regulatory landscape is moving quickly. Can you share some of the complexities and challenges?

KATE OSWALD: ANZ operates in 29 markets which provides us with insight into how the global regulatory landscape is evolving.

Climate-related regulation and policy setting has been led by Europe and the UK for many years. More recently, we’ve observed an increase in the establishment of regulatory guidelines and expectations across Asia, including Singapore and Hong Kong.

From a disclosure perspective, we were the first Australian bank to report against what has become the international benchmark, New Zealand was the first country in the world to pass legislation mandating financial institutions disclose climate-related risks and opportunities. Australia is now in the process of legislating mandatory climate disclosures based on International Sustainability Standard Board (ISSB) standards.

The pace and scale of regulatory change globally creates uncertainty, complexity and challenges for global businesses and financial institutions, including ANZ.

For example, whilst regulatory expectations aim to align with common frameworks, such as the Task Force on Climate-related Financial Disclosure (TCFD) and ISSB, there will be differences to be taken into consideration and managed at a Group and local country level.

Data needs will differ across countries based on the physical risks and the composition of the lending portfolio. Quality, availability and consistency of climate-related data remains a challenge, making it difficult to assess risk and make informed decisions.

Given climate risk is a relatively new discipline compared to more mature risks, we also need to build the capability of our staff to assess and manage it effectively.

We are taking steps to strengthen our approach to managing climate risk, including integrating key regulatory obligations into our non-financial risk framework. We are working closely with countries impacted by new regulations to oversee and support them in developing their approach.

We are on a journey to develop capability for managing climate risks and to align with developing regulatory expectations. We will continue to review and evolve our approach over time as the external landscape changes.

KEVIN CORBALLY: Finally, Kate can you tell us a little bit about your career trajectory – how did you become Head of Climate Risk and what are you focused on?

KATE OSWALD: I started my career at ANZ over 16 years ago as a Risk graduate. This gave me an opportunity to learn about different areas of risk, which has served as an important foundation for my career. Working at ANZ gave me the opportunity to move roles every few years to seek out new challenges, see different perspectives and feed my intellectual curiosity.

Most of my career has been very customer centric, working in the Institutional business across different sectors and the credit value chain, covering relationship management, research and analysis and credit risk. I also spent a few years focused on strategic transformation and simplification within our Group Wholesale Credit function.

This included leading initiatives to help understand and respond to the risks to the Wholesale portfolio in response to COVID-19, which informed decision making at a crucial time for the bank and our customers.

I moved into the climate risk space three years ago, which combined an area I was personally passionate about with a desire to make positive change. This came during at a time of crucial change in the external landscape, including the introduction of APRA's prudential guidance on climate change financial risks and its inaugural Climate Vulnerability Assessment.

Last year I attended the Climate-related Financial Risk Programme at Oxford University, which provided a great understanding of the latest research on measuring and assessing climate risk.

I was appointed to this role in November, following the elevation of climate risk to a material risk. I am passionate about integrating climate risk into the bank's risk management framework. I get to work with great people across different teams to set and execute on our strategic priorities. I genuinely believe the work I am doing is making a difference to our future.

I’m passionate about enhancing our climate risk policy and governance framework, building our scenario analysis capability, delivering on our data strategy and ensuring we are well positioned to meet the anticipated Australian mandatory climate disclosure regime, which is in the process of being legislated.

Kevin Corbally is Chief Risk Officer at ANZ.