Recognizing the Risk of Financed Emissions

Oracle has officially announced the launch of its Oracle Climate Change Analytics Cloud Service, which is designed to help financial institutions understand financed emissions, address statutory compliance, and mitigate climate change-related risks. According to certain reports, the stated service separates itself from similar solutions with an ability to let these institutions calculate emissions across various asset classes and jurisdictions, thus taking the focus beyond just greenhouse gas emissions. By doing so, it allows for the computation of a climate rating at a counterparty level across the bank’s customer portfolio, while simultaneously incorporating climate change risk into other risk-management functions, such as project planning and risk audits and analysis. Talk about the whole value proposition on a slightly deeper level, we begin from how Oracle’s Climate Change Analytics Cloud Service performs carbon accounting by calculating greenhouse gas emissions based on The GHG Protocol Corporate Accounting and Reporting Standard. Next up, we already referred to the solution’s promise of calculating and disclosing emission numbers for financed, facilitated, avoided emissions, as well as for emissions removal, but what we did not mention was its knowhow in gauging all these numbers based on the Partnership for Carbon Accounting Financials guidelines. Moving on, the solution in focus is even well-equipped to integrate climate risk into overall enterprise risk and investment decision-making, something it does with the help of an in-house Climate Scorecard framework, probability of default (PD), loss given default (LGD) models, and heatmaps.

“While banks work on climate-related financial risks that could affect them directly through their operations, they also need to be cognizant of their effect on climate indirectly through the businesses they finance. This dual responsibility requires critical management of both risk and their own Net Zero commitments, which demands a significant effort from banks,” said Jason Wynne, global vice president for finance, risk, and compliance product development, Oracle Financial Services. “Oracle Climate Change Analytics Cloud Service enables financial institutions to calculate, and analyze the impact of their carbon emissions, as well as climate targets on current and planned investments.”

Hold on, we still have a few bits left to unpack, considering we still haven’t discussed that the solution can let you access more than 100 prebuilt, cross-jurisdictional climate change reporting disclosures, analytics, and visualizations so to help you meet requirements of all standards boards and regulators. Another detail worth a mention here is rooted in the product’s potential when the agenda is to use advanced analysis for sourcing, configuring, storing, and analyzing customer climate change data with rich data models for analytics. Rounding up highlights for us would be a feature where the solution is able to help you reduce IT investment through cloud-native technology, which on its part, can establish conformity to the ever-changing climate change reporting requirements.

The development in question delivers a rather interesting follow-up to one National Oceanic and Atmospheric Administration report which revealed that global average atmospheric carbon dioxide in 2023 set a new record high at 419.3 parts per million. Complimenting the same is a separate report from CDP that claims portfolio emissions are over 700 times larger than direct emissions – and the risks of inaction are huge.

“These risks are global in nature, and will have effects across all entities, sectors, and economies….the breadth of climate-related risks – including their possible simultaneous occurrence across multiple jurisdictions and sectors – also has implications for the resilience of the financial system,” said the Financial Stability Board (FSB).