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Climate risk assessment – The bedrock of your adaptation journey

Your challenge

Many financial institutions are in the process of developing a robust, decision-useful approach to assess physical climate risks. All too often, such efforts remain fragmented, mere compliance exercises and disconnected from strategic decision-making.

The core challenge in integrating physical climate risk assessments into strategy lies in translating complex, uncertain and long-term climate data into actionable insights that align with financial decision-making frameworks.

In addition, institutions often struggle with the limited availability of reliable data and lack of standardized methodologies for identifying risks and assessing materiality across scenarios and timeframes.

EY’s perspective

To support strategic resilience to climate change, financial institutions should integrate climate risks into existing risk management frameworks (e.g. pursuant to FINMA Circular 2026/1).

This entails governance bodies that have clearly defined roles and responsibilities as well as sufficient skillsets, robust risk identification and assessment processes across scenarios and time horizons that reflect risk appetite, business and climate strategies and risk monitoring with clear escalation pathways.

A comprehensive materiality assessment should serve as the starting point for identifying climate risks that are financially material to the institution. By systematically evaluating which climate-related risks could significantly impact the institution’s financial position, performance, or reputation, governance bodies can prioritize resources and tailor risk management efforts accordingly.

As regulatory pressure mounts, treating climate risk assessment and management as a compliance task rather than a strategic priority limits its impact, leading to blind spots, mispriced exposures and missed adaptation opportunities.

Institutions that embed climate risks systematically will not only meet regulatory expectations but also enhance their strategic resilience and unlock business opportunities, including those arising from climate-resilient investments.

Embedding climate risks into risk frameworks is essential to meet regulatory requirements and to enable climate-aware strategic decision-making that ensures resilience.

Dr. Christos Karydas, Senior Manager, Lead Climate and Nature Risk, FS Risk Consulting, EY Switzerland

Our recommendations

Identify weaknesses in data, methodologies and processes and align with business and climate strategy.
Assign responsibilities and promote awareness across the organization.
Ensure climate risk insights are embedded in core business processes rather than treated as separate assessments.

Read our online article