Financial institutions face increasing pressure from regulators to understand their environmental footprint and the environmental footprint of the companies they finance or invest in (also known as financing emissions).
To help banks better assess climate risks, Oracle today launched Oracle Climate Change Analytics Cloud Service. Powered by built-in artificial intelligence, the new reporting and analytics solution is designed to help financial institutions understand financing emissions, address statutory compliance issues and mitigate risks associated with climate change.
Jason Wynne, global vice president of finance, risk and compliance product development at Oracle Financial Services, said: “While banks are committed to addressing climate-related financial risks, these risks may directly impact them through their operations. them, but they also need to recognize the impact of these risks on the banking industry. This dual responsibility requires rigorous management of risk and their own net zero commitments, which requires a significant effort from banks.
“Oracle’s Climate Change Analytics Cloud Service enables financial institutions to calculate and analyze the impact of their carbon emissions and climate targets for current and planned investments to gain a complete understanding of the bank’s resilience and risks related to climate change.”
According to a report from the National Oceanic and Atmospheric Administration, the global average atmospheric carbon dioxide concentration will hit a new record of 419.3 parts per million in 2023. The Financial Stability Board (FSB) added that “these risks are global in nature and will affect all entities, sectors and economies… The breadth of climate-related risks – including that they may arise simultaneously in multiple jurisdictions and sectors occur – and also have an impact on the resilience of the financial system.”
As climate-related risks rise, banks must better understand and account for the impacts on their overall asset portfolios from a regulatory and business strategy perspective. Through pre-built computational models and dashboards, the service can help banks save time and effort, meet global climate change reporting requirements, and integrate climate risks into future risk and investment decisions.
‘Climate risk’ assessment made easier
Banks are faced with the challenge of complying with multiple frameworks across multiple jurisdictions, and collecting and storing the information required to meet these requirements can be daunting. This is especially true when dealing with large and complex global customers. Using built-in artificial intelligence and natural language processing (NLP) tools, Climate Change Analytics scours the internet for publicly available information on the climate change initiatives of companies in which the bank invests, which contributes to their overall assessment of climate risk.
CDP, a leader in aggregating global climate disclosures across bank portfolios, also said portfolio emissions are more than 700 times higher than direct emissions and that the risks of inaction are significant. Financial institutions must urgently decarbonize their portfolios by disclosing the impact of their financing activities, setting science-based targets and aligning all financing activities with the Paris Agreement.
Oracle’s new cloud service enables financial institutions to calculate emissions across a variety of asset classes and jurisdictions. This includes not only greenhouse gas emissions across the organization’s operations and value chain, but also financing and facilitating emissions for its customers. This allows climate ratings to be calculated at the counterparty level of a bank’s client portfolio and to integrate climate change risks into other risk management functions, such as project planning and risk audit and analysis.
Key capabilities of Oracle Climate Change Analytics Cloud Service include:
- Calculate greenhouse gas emissions and conduct carbon accounting in accordance with the Greenhouse Gas Protocol corporate accounting and reporting standards.
- Calculate and disclose emissions financed, promoted and avoided, as well as emissions removed, in accordance with the Carbon Accounting Financial Partner Guide.
- Integrate climate risk into overall corporate risk and investment decisions through an internal climate scorecard framework, probability of default (PD) and loss given default (LGD) models and heat maps.
- Access over 100 pre-built cross-jurisdictional climate change report exposures, analyses, and visualizations to meet the requirements of standards committees and regulators.
- Use advanced analytics to acquire, configure, store and analyze customer climate change data and leverage rich data models for analysis.
- Leverage cloud-native technology to help reduce IT investment and meet changing climate change reporting requirements.
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