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Viewing Climate Risk Through a Global Finance Lens

By Frank La Salla, DTCC President, CEO & Director | 3 minute read | March 28, 2023

One important lesson I’ve learned throughout my career is that the risk environment is always evolving with new risks emerging frequently and often in unexpected ways. Think about cyber risk. It barely registered on the radars of most companies 15 years ago. Today, it’s rated as one of the top threats facing businesses across industries globally.

Climate risk feels like it may follow a similar path. The problem is evident – more wildfires, drought, flooding, extreme storms and rising sea levels to name a few – but while most organizations recognize the need to act, they’re focused on other, more immediate risks, such as geopolitical risk, inflation and high interest rates. This reality is reinforced by the results of our 2023 Systemic Risk Barometer, which found that climate change ranked 8th among the top risks facing financial services, however, only 22% of risk management professionals cited it as a Top 5 risk, down from 38% last year.

Climate risk is increasingly becoming a priority of regulators and policymakers around the world, who view it not just as an environmental matter, but as a potential threat to global financial stability. Much like cyber risk is no longer seen through the narrow lens of technology, climate risk is a legitimate economic and financial risk that all organizations must prioritize and actively manage.

Over the past decade, our company has been impacted by extreme weather events numerous times – most notably with Superstorm Sandy a decade ago, and to a lesser degree with the need to close our Tampa and Manila offices several times in recent years due to hurricanes and typhoons. Given the fact that financial market infrastructures (FMIs) like DTCC exist to protect the safety and stability of the global financial markets – and in doing so, mitigate risk for the industry and, therefore, the investing public – we’re working diligently to understand how climate risks might impact our business.

We’ve collected and published our thoughts in a new white paper, Climate-Related Financial Risk: An FMI’s Perspective, which represents the first-ever analysis that examines how climate-related financial risks – as it relates to both physical and transition risk – may impact FMIs. Due to the critical nature of the work we do, we’ve already begun taking steps to embed climate risk in our risk management framework, including adding climate-related trending metrics to our existing Business Continuity programs and exploring ways to incorporate climate-related risk monitoring within our Counterparty Credit Risk group.

This is an important discussion for our industry, and I’m strongly committed to promoting environmental sustainability and governance at DTCC and across the industry. For instance, we've embarked on a multi-year program to reduce our carbon footprint operationally, increase our use of renewable energy and continue to work with environmental groups planting trees in the United Kingdom, the Philippines, India and the United States.

We all need to do our part and I welcome your thoughts on this topic.

Frank Sifma Headshot
Frank La Salla

DTCC President, CEO & Director