Climate change business impact assessment for UK lender - D-Risk Group

Climate change business impact
assessment for UK lender

Summary

The provision of intrinsic risk scoring against climate related business impacts across its commercial mortgage portfolio was required by a UK lender.

Requirements

Based on the recently released requirements outlined by the Prudential Regulation Authority (Supervisory Statement SS3/19), the lender required two tiers of evaluation. The initial assessment was to analyze the flood risk profile of its present commercial mortgage back book against the potential changes in risk attributed to climate change. The second tier of the evaluation was to focus upon the highest risk properties and explore the solutions available to reduce the potential impact upon the business continuity of each respective property in the future. The motivation to understand credible solutions was driven by the need to ensure that property value was not impacted in the future as well as managing the overall risk profile of the lender.

Our solution

D-Risk utilized its collective experience whilst working with its industry-leading partners in presenting the initial overview of the client’s risk profile over the next fifty years, capturing the lifecycle of all present mortgages. By setting specific search parameters, it was possible to efficiently separate the good from the bad, aided by a geospatial overview. Knowing the overarching risk profile enabled the lender to determine the present risk level that was acceptable. Mortgages that did not conform to their standard of acceptability were then further analyzed by D-Risk. Numerous risk mitigation options were then presented that were individually tailored to each site, in order to enhance the security around each asset value into the future.

Requirements

Our solution

Based upon the recently released requirements outlined by the Prudential Regulation Authority (Supervisory Statement SS3/19), the lender required two tiers of evaluation. The initial assessment was to analyse the flood risk profile of its present commercial mortgage back book against the potential changes in risk attributed to climate change. The second tier of evaluation was to focus upon the highest risk properties, and explore the solutions available to reduce the potential impact upon the business continuity of each respective property in future. The motivation to understand credible solutions was driven by the need to ensure that property value was not impacted in future as well as managing the overall risk profile of the lender.

D-Risk utilised its collective experience whilst working with it’s industry leading partners in presenting the initial overview of the client’s risk profile over the next fifty years, capturing the lifecycle of all present mortgages. By setting specific search parameters, it was possible to efficiently separate the good from the bad, aided by a geospatial overview. Knowing the overarching risk profile enabled the lender to determine the present risk level that was acceptable. Mortgages that did not conform to their standard of acceptability were then further analysed by D-Risk. Numerous risk mitigation options were then presented that were individually tailored to each site, in order to enhance the security around each asset value into the future.

Result:

The lender was able to coherently understand their future risk profile against climate change, and develop greater confidence in the asset value held within their portfolio. Future lending decisions were able to adopt new risk management principles in order to minimise losses in value, but also to identify clients that may need additional financial support to overcoming any identified risk.