You know better than I do that there’s a lot of controversial “stuff” going on right now (and for quite some time, actually) that has (and will) have a profound impact on community banks. One thing, however, that I think we can all agree on is this: Bankers deserve a break.
Just a short time ago, we talked about this; the fact that protecting PII (Personally Identifiable Information) is becoming nearly impossible, that customers want more and more in terms of a digital experience, that competition for banks is coming from everywhere, that compliance is becoming increasingly challenging and costly, that it’s time for banks to replace their core systems… the list goes on and on.
The latest “warning” seems to be about climate regulation, although this really is nothing new. I believe that the notion that climate change could trigger a worldwide financial crisis has been circulating for nearly a decade. [“Mark Carney, the former governor of the Bank of England, warned of financial risks from climate change as long ago as 2015”, according to a September 2021 article in The Economist: “Could climate change trigger a financial crisis?”]
Why, then, are some folks in the banking industry talking about this as if it were something new and, well, fearful, for community banks? Granted, there’s quite a bit of uncertainty surrounding climate change. But, not so much about whether or not it exists — although there are still some out there that think it’s a figment of our collective imaginations — but the ramifications of it.
The 2017 TCFD (Task Force on Climate-Related Financial Disclosure) Report says this: “One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change. While it is widely recognized that continued emission of greenhouse gases will cause further warming of the planet and this warming could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate.” Which, I believe, is why the financial services industry has been talking about this for years. And instead of making what seems to be concrete progress toward addressing the situation, simply fretting over the impact that the risk management framework may or may not have on a bank’s bottom line.
Sure, there will be costs associated with responding to the challenges that a changing climate poses to individuals, businesses, and markets. But sitting back and predicting doom and gloom doesn’t seem, to me anyway, particularly helpful.
I get the impression that some in the financial services industry see TCFD risk management framework compliance as a time-consuming, error-prone, heavily manual, and therefore extremely costly process. Given that view, I imagine that those individuals must be picturing that compliance as teams of expensive individuals doing massive amounts of research, filling out spreadsheets, and sharing them via the U.S. mail.
That is so 1980.
Here’s a thought. Technology. Let’s instead look to the future with optimism, instead of trepidation. Technology can do that for us. Using 21st Century tech such as AI, ML, AR/VR, banks can lead the way in ensuring that the concerns that were, frankly, raised nearly ten years ago, never become our reality. Instead of assuming that the TCFD’s framework will be onerous, disruptive, and expensive, let’s continue to keep open minds and look to a future that, at the moment unfortunately, some seem unable to imagine; a future driven by the developments we’re seeing in technology.
The kind of efficiencies that these technologies bring to the gathering, analysis, and validation of data are at this very moment revolutionizing the way banks work. “Scenario analysis”? With AI/ML, a piece of cake.
The tech that is out there right now can make it entirely possible (and let’s face it, this is going to happen whether banks want it or not) for banks to meet the TCFD compliance framework requirements quickly, easily, and cost effectively. And I don’t pretend to have a crystal ball with Fortune Teller powers to see the future. The Task Force said this nearly six years ago: “Improved practices and techniques, including data analytics, should further improve the quality of climate-related financial disclosures and, ultimately, support more appropriate pricing of risks and allocation of capital in the global economy.” And companies like UK-based Risilience are already making it happen.
Well, that’s my (and the Task Force’s) vision of the future. As always, I welcome your thoughts on the subject.
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