Even after the 2008 financial crisis, new research by the 2° Investing Initiative and the Generation Foundation highlights how analysts and investors still largely ignore ‘white swans’ – non-cyclical, non-linear, long-term financial risks that short-term (1-5 years) focused financial analyses leave in the dark.
In an interview for Business Green, Mike Wilkins, S&P Global Ratings’ Head of Environmental & Climate Risk Research, explains that financial regulators are addressing this lack of long-term and climate risk analysis. “I think it is moving in the right direction; the question is how quickly,” he says. “The work the FSB Taskforce is doing is absolutely fundamental to not just change the mindset, but to hardcode financial disclosure requirements into the framework so that every participant in the financial system can get a much more informed and consistently comparable view of what these risks and opportunities are.”
For S&P in particular, an Environmental, Social, and Governance (ESG) risk assessment is expected to be released within the next few months. The assessment would evaluate a corporation’s short (3-5 years) and long-term (beyond 5 years) impact on the natural and social environment, as well as the governance mechanisms in place to oversee exposure to such risks.
The full interview can be read here (subscription required).