The banking industry’s approach to climate risk has been hampered by a critical challenge: the lack of reliable, standardized, and accessible data. As revealed in recent FIBAC 2024 discussions, this data gap represents both the industry’s biggest obstacle and its most promising opportunity for collective action. The solution lies not in individual efforts, but in creating shared infrastructure that benefits the entire financial ecosystem.
The Data Dilemma
Financial institutions face multiple data challenges when assessing climate risk. Much of the relevant information remains locked within insurance agencies, client disclosures lack standardization, and historical climate data is virtually non-existent. The fidelity of physical asset data remains poor, and existing information often sits in organizational silos, inaccessible when most needed.
Without reliable data on asset locations, climate hazards, and vulnerability assessments, banks struggle to price risk accurately or develop appropriate mitigation strategies. The result is a fragmented approach that leaves the entire industry vulnerable to climate-related losses.
The Climate Risk Utility Vision
Industry leaders are proposing a game-changing solution: a climate risk utility that serves as a common platform for all financial institutions. This collaborative infrastructure would aggregate data from approved and trusted sources, including GST records for physical asset locations and utility bills for energy and water consumption patterns.
Such a utility would function as a central repository for emissions data, provide heat maps highlighting high-risk regions, and offer standardized scenario assessment tools. By partnering with regulatory bodies like the RBI, it could establish prescribed data formats that create industry-wide standardization—something individual banks cannot achieve alone.
Global Precedents Show the Way
This isn’t theoretical—similar utilities already exist in the EU and UK, providing data analytics and sharing risk frameworks across financial institutions. The Hong Kong Monetary Authority has developed a beta version of a physical risk assessment platform specifically for commercial and residential buildings. These examples demonstrate both the feasibility and value of collaborative approaches to climate data.
The Coalition for Disaster Resilient Infrastructure (CDRI) has developed GIRI, an open-source model covering eight critical infrastructure types that allows users to overlay assets and understand exposure. With global infrastructure losses of $800 billion annually and India accounting for $30 billion in critical infrastructure losses, such tools are becoming essential for risk management.
Leveraging Existing Digital Infrastructure
Rather than building entirely new systems, the industry can leverage existing digital public goods. India’s AgriStack initiative, which digitizes rural and agricultural activities through farmer KYC, crop types, and land ownership data, could be enhanced with climate-related information. This approach maximizes efficiency while creating comprehensive data sets for climate resilience.
NABARD’s collaboration with UNDP on data-driven agriculture and their work with state governments to populate climate data frameworks exemplifies how existing initiatives can be expanded to serve broader climate risk assessment needs.
Beyond Data: Building Collective Capacity
A climate risk utility offers more than just data—it becomes a platform for industry-wide capacity building. By sharing skill sets, methodologies, and global best practices, such an initiative addresses the widespread knowledge gaps that currently limit effective climate risk management across financial institutions.
This collaborative approach also enables the development of industry-standard models for embedding climate risk into traditional risk management frameworks—something particularly valuable for mid-tier banks that lack the resources to develop proprietary solutions.
The Network Effect of Shared Standards
When financial institutions work together on climate risk infrastructure, they create powerful network effects. Standardized metrics make cross-institutional comparisons meaningful, shared methodologies reduce development costs, and collective data improves model accuracy for everyone involved.
A Self-Regulatory Organization (SRO) for green and climate financing could further amplify these benefits by establishing common conduct standards and practices across institutions, reducing regulatory arbitrage and creating a more stable competitive environment.
From Competition to Collaboration
The climate crisis demands a fundamental shift from competitive individualism to collaborative resilience. Banks that embrace shared climate risk utilities position themselves not just for better risk management, but for participation in a more robust and efficient financial ecosystem.
As the industry grapples with climate events occurring 320 days out of 365 annually, the choice is clear: continue struggling with fragmented, inadequate data, or join forces to build the infrastructure that will define climate-resilient banking for decades to come. The banks that lead this collaborative effort won’t just manage climate risk better—they’ll help create the standards and systems that shape the future of sustainable finance.
