To strategically address climate adaptation, financial institutions would greatly benefit from defining a clear ambition, with objectives and priorities that protect and adapt their exposures. Forerunners are promoting and supporting adaptation measures implemented by borrowers, investees and policyholders, while safeguarding broader societal and environmental goals. Ideally, such objectives should be informed by climate risk assessments and stress tests, as also required by FINMA when climate-related risks are deemed material.
This ambition should translate into a holistic and integrated adaptation strategy that encapsulates a transition plan aligned with the institution’s broader sustainability agenda.
The success of such a strategy hinges on cross-cutting levers such as engagement with counterparties, innovative product offerings and ad hoc process integration – such as claims management in insurance or due diligence in bank lending – to ensure that appropriate adaptation measures are identified and implemented and to provide incentives for counterparties to act accordingly.
On top of these, other critical elements to be acknowledged and monitored are, the commitment of internal stakeholders with the right expertise, structured governance with clear policies, guidelines, and defined roles and responsibilities, adequate budgeting, as well as precise performance monitoring and reporting mechanisms.
