A new £10 million research and innovation programme is opening to support the integration of the financial risks of climate and environmental change into mainstream financial decision making.

Demand from the financial services sector for improved climate and environmental risk data and analytic tools is increasing rapidly. Drivers for this include: mounting financial losses from extreme weather events (ca. £388 billion worldwide in 2017)[1] and new demands from regulators for improved climate risk disclosures (such as those set by the Taskforce for Climate-related Financial Disclosures (TCFD)).

In response, banks are increasingly looking to assess the biggest physical risks to their business models, including mortgage exposure to flood risk. Banks, insurers and asset managers are also starting to consider exposure to risks from climate change transition including in carbon-intensive industries and high carbon goods and services.

The ‘Climate and Environmental Risk for Resilient Finance’ (CERAF) programme from the Natural Environment Research Council (NERC) and Innovate UK will help support research, innovation and investment in improved risk information and services for the financial services sector.

Professor Duncan Wingham, Executive Chair of NERC, said: “As highlighted in the UK Government’s Green Finance Strategy, the global financial system has vital role to play in the transition to a low carbon economy and the recovery and restoration of our natural environment. To better inform their management of climate and environmental risks on both sides of the balance sheet, investors need high quality data and analysis, based on the best science.

“In response, and in the year that the UK hosts the COP26 UN Climate Change Conference, NERC and Innovate UK have come together with financial services stakeholders to deliver this new research and innovation programme. The data and tools developed will help enhance the resilience of the financial system to the increasing impact of climate and environmental variability and change and drive more sustainable investment of capital.”

Ian Campbell, Interim Executive Chair of Innovate UK, added: “The climate crisis effects everybody and business has a vital role in managing and mitigating the risks caused by global warming. That is why Innovate UK, along with NERC, is acting now to stimulate the market for improved risk analytics for the financial sector as it faces climate change transition.

“Working with SMEs and larger corporates, we will help drive the development of new solutions that will lock in the risk management of climate change into mainstream financial decision making.”

The programme will comprise two stages:

· Stage 1 is now open and will involve a single grant award by NERC to fund translational research and the development of an open-access risk data and analytics information infrastructure for climate and environmental risks.

· Stage 2 will involve Innovate UK funding for SMEs and larger corporates to stimulate the development of commercial analytics and reporting services to generate and contextualise data, translating it into decision-relevant information for the financial services sector.

For more information please visit: https://nerc.ukri.org/press/releases/2020/pioneering-green-finance-programme/