A study on efforts to address climate risk governance has exposed contrasting approaches to managing key issues at board level for financial and insurance firms.

The research report was commissioned by water risk intelligence firm Fathom and conducted by fund management researchers IFI Global. It sourced its findings from self-disclosed annual and ESG reports from 92 major corporations, insurance firms, banks and investment firms, as well as interviews with CEOs, board directors and senior managers on the challenges, opportunities and the evolving practices in climate risk.

Among the key findings, the report suggests that only 30% of insurance firms have a dedicated climate risk committee, lagging behind 63% of banks and closely falling behind investment management firms at 31%.

While 81% of those interviewed name a lack of accurate and consistent data as the greatest challenge that boards face with climate risk, only 43% of insurance firms utilise external toolkits or expertise for climate risk assessments. By comparison, investment management is the highest at 56%, while banking sits at 17%.

Harry Vardigans, head of insurance at Fathom, said: “This research highlights a significant opportunity for the insurance sector to enhance its climate risk management. Insurance firms would greatly benefit from establishing dedicated committees and improving their data resources to better integrate climate risk into their strategies.

“Ultimately, robust governance in the insurance sector can lead to more resilient business practices and a competitive edge in an increasingly climate-conscious market.”

The report details recommendations for firms to proactively address the climate challenges faced by boards and suggests areas where further research is required. Simon Osborn, CEO at IFI Global, added: “Climate risk is multi-dimensional. This puts it into a different category from all the other risks that boards have to address. The results of this research suggest that, due to its complexity, those responsible for the governance of the financial industry haven’t yet found an approach to tackling climate risk that they are fully satisfied with.”

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