Mercer and Oliver Wyman helping UN with decarbonising financial services

The United Nations has hired consulting firms Mercer and Oliver Wyman to serve as an expert advisor on a project examining climate-related risks and opportunities for financial institutions.

The United Nations Environment Programme – Finance Initiative (UNEP FI) is a partnership between the UNEP and the global financial sector. The initiative was established in the aftermath of the 1992 Earth Summit, with the group’s founder making its mission to promote sustainable finance. The initiative is supported by some 200 financial institutions, including banks, insurers, and investors, who work with UNEP to show how today’s environmental, social and governance challenges matter to finance, as well as how the industry must actively participate to address them adequately.

In order to address one such major issue, climate change, UNEP FI has launched a new project to develop common analytical tools – including scenarios, methodologies and metrics – for banks to strengthen their assessment and disclosure of climate-related risks and opportunities. The initiative will seek to enhance the ability of the group in the implementation of recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), along with promoting consistency and comparability in climate change assessments and disclosures across the financial world.

According to UNEP FI Head, Eric Usher, the aim of the project is to make good on one of the “buzzwords” most commonly associated with the sustainable finance world, 'mainstreaming'. He elaborated, “For us to achieve a sustainable financial sector we need to mainstream environmental factors from the periphery of financial institutions' attention into their core decision-making. This is a key objective not only of UNEP FI but also of the TCFD.”

In June 2017, UNEP FI established a Working Group of 16 leading banks in order to realise this. To support the process, the UNEP FI and Working Group have now drafted in consultants from Oliver Wyman and Mercer. The duo of Marsh McLennan owned companies will concentrate their talents on transition risks associated with different scenarios for decarbonising the economy. This will see Oliver Wyman leverage its experience in stress testing and credit risk measurement to help banks assess and mitigate climate risk, while Mercer will draw upon its climate scenario risk tool, which was developed in partnership with a number of large global institutional investors and published in 2015.

Commenting on the aims of the climate project, Mercer Partner and FSB Task Force member Jane Ambachtsheer said, “The Task Force’s vision was to encourage collaboration and consistency in approach. This project fits the bill.”

John Colas, Oliver Wyman Partner, added, “The translation of climate risk factors into prospective financial performance is less well understood than more traditional risk types in financial services. Helping the industry develop a methodology to measure and disclose these risks will serve to enhance overall risk management and better inform strategic capital allocation decisions. This integration of climate risk factors within existing frameworks will help underpin meaningful actions towards future sustainability.”

Commenting on the collaboration with the two consulting firms, UNEP FI Head Usher remarked, “We are very pleased to have the support of Oliver Wyman and Mercer as we work together with 16 global banks to operationalise and mainstream the TCFD recommendations into their core businesses.”

UK-based climate change advisory and analytics company Acclimatise is also involved in the project. The firm will be responsible for the elements related to physical risks under different climate scenarios. Acclimatise has previously worked in over 70 countries for over 180 public, private and non-governmental organisations, leveraging a 24-strong team of all talents, including MSc and PhD level academics from climate and atmospheric science, environmental management, civil engineering, land-use management, water resources, climate finance, economics, conservation biology, GIS and computing, international law and development, journalism, and media and communications.