Integrating advanced analytics tools in wealth and asset management

Wealth and asset managers are rapidly recognising the need to identify and respond to climate-related risks that can directly impact their client and investment portfolios – and by extension their reputation. It’s no longer about the financial implications alone. It’s about embracing a proactive stance that transcends profit margins.

An intelligent response that’s increasingly being adopted by players in the industry is climate risk modelling. By doing modelling on the basis of broadly recognised and comparable scenarios such as those provided by the Network for Greening the Financial System (NGFS), wealth and asset managers can demonstrate their strategies for assessing, adapting to and mitigating the impacts of climate change.

Climate risk modelling is a way of understanding the materiality of a broad array of risks and the ways they can lead to things like financial loss, reputational damage and operational disruptions. It equips wealth and asset managers to better deal with the unexpected, navigate regulatory uncertainty, tackle the problem of fragmented data, meet increasing client expectations and adapt product offerings to integrate climate-related factors.

• It enables wealth and asset managers to make more informed investment decisions by quantifying the financial impacts of climate-related risks and opportunities across portfolios.
• It allows them to offer tailored investment solutions aligned with clients’ sustainability preferences and risk tolerance, enhancing satisfaction and retention.
• It helps them develop enhanced financial products such as green bonds and sustainability-linked loans that cater to different market demands and capitalise on opportunities presented by climate-related trends.
• It helps wealth and asset managers identify and mitigate potential reputational risks associated with investments in high-carbon or environmentally controversial industries, safeguarding their reputation and brand integrity.
• It enables them to measure and assess compliance with regulatory standards and reporting requirements, meet the necessary guidelines and effectively communicate their efforts in managing climate risks to stakeholders and regulators.

Climate risk modelling is fast becoming the best practice in the industry. Among others, the European Central Bank and the Bank of England both run climate stress test exercises to assess the resilience of banks to climate-related risks as part of their regular supervisory activities. The Swiss regulator FINMA has also introduced requirements related to scenario analysis in a recent circular.

Pioneering wealth and asset managers are staying ahead of the curve by adopting the practice of climate risk modelling now. They’re finding that it’s not just a great aid to compliance, but a source of insight that can drive better strategic decisionmaking.

To find out more, download our white paper and reach out to us for a more in-depth conversation about climate risk modelling and its ben§efits for your business.