Our interview with Amitav Borkakoty, Global Head, Risk Governance and Enterprise Risks, Standard Chartered, explores tomorrow’s industry-defining solutions. Amitav is responsible for effective operations of the risk frameworks, policies, risk appetite and governance activities across the Group, and provides second line oversight of: country risk, climate risk and sustainability risk (including ESG), reputational risk, crypto-assets risk and insurable risks.
Q. How has COVID-19 impacted your enterprise risk management framework?
The recovery from COVID-19 is likely to be uneven across our footprint. It reinforces the role of scenario analysis to continuously assess what it means to the risk profiles and performance, as well as timely risk interventions. We continue to closely watch sovereign risk for lower income countries with high debt levels post-COVID, and potential impact from any private sector participation in debt restructuring initiatives.
Our workforce, third party partners and the systems infrastructure that we operate with are more distributed than pre-COVID 19. This puts more emphasis on risks such as information and cyber security, data privacy and operational resilience.
Innovation has accelerated during COVID-19, challenging traditional business models. End-to-end business processes such as trade finance, are now facilitated through blockchain technology and automation. While this is an opportunity, it also creates newer variants of risks. With digitization being a key pillar of the Group’s strategy going forward, technology risk has been elevated as a principal risk to ensure enhanced risk oversight. Similarly, as the Group increases the focus on digital assets, areas such crypto-assets risk management are becoming a priority.
Q. How does technology enable you to manage new risks?
We continue to evolve with data and technology-enabled risk identification and risk assessments mechanisms vis a vis traditional questionnaire-based approach. For example, we use web scrapping and machine learning-based due-diligence tools to assess and predict reputational and ESG risks on our client portfolio. We have partnered with climate scientists, insurance and modelling experts to build our climate risk toolkit to assess financial risks arising from physical and transition risks.
We are also excited to be working with TruEra, a model intelligence platform that removes the black box surrounding machine learning, to train the business and risk teams on how to think about using machine learning and AI in a responsible way and validate our credit decision tools to ensure there are no biases or performance issues. We are actively leveraging machine learning and AI in our retail business.
Q. How are you managing sustainability risks?
We are managing the sustainability risks in two distinct dimensions: the “outbound” responsibility and reputation-related risks causing significant environmental and social harm to the planet we live in, as well as “inbound” financial risks associated with our borrowers or our own operations with the current emphasis on climate change related financial risks.
Given our ambitions on sustainability, we have also elevated sustainability risk as one of the principal risks, focusing on OECD principles of doing no harm and responsible business conduct. We also recognize climate risk as a material cross-cutting risk manifesting through traditional risks such as credit, market and operational.
Standard Chartered is proud to be the current Chair of the Equator Principles, which provides us a great platform to engage with a wide range of E&S professionals and adopt best practices.
We continue to invest in ESG data and tools to enable insights on our client portfolio and engage clients on the risks and opportunities. Given our footprint, we believe we have a differentiating advantage to adopt best practices from one part of the world and deploy them in another part of the world to facilitate client transition and adaptation plans.
This helps with much richer conversations with clients. I am excited to be involved in this space where conversation around ESG risk and opportunities can happen at the same time. We are rolling out an internal E&S risk taxonomy in the Bank as a common language to identify, assess and manage risks associated with clients, third parties and own operations.
Q. Where are you in terms of ESG risk disclosures?
We are proud of our recent TCFD and SASB disclosures as well as reports such as the Sustainable Finance Impact Report and Zeronomics. Our 2020 TCFD disclosure comprehensively covers the approach to climate risk management. We have made substantial progress to measure transition and physical risks. We cover both dimensions of risk as referred above – “outbound” responsibility related risk or level of emissions in our operations, as well as “inbound” financial risk associated with borrowers’ credit quality and asset prices.
We are carefully watching the regulatory developments across our footprint as the concept of double materiality matures. Some regulators are focused on promoting green financing, green asset ratio and minimum safeguards for doing no significant harm, and others are focused on financial risks embedded in the existing portfolios of banks and insurers. We are worried about divergence of regulatory requirements and expectations across our footprint and are actively engaging with our regulatory supervisors.
Q. What advice do you have for those who are starting to think about ESG risks?
Firstly, don’t wait for a perfect ESG risk management toolkit and get started with the basic tools and insights. Build a roadmap with data and technology enablers as key building blocks. Don’t expect high levels of precision and statistical significance in the ESG and climate risk models. You should not wait for 90-10 accuracy but instead adopt a 60-40 progress model.
Secondly, keep the ESG risk and opportunity conversation joined-up. This is not achievable with a small group of experts. Organization-wide awareness is a critical success factor including balanced consideration of upsides from sustainable financing opportunities and downside ESG risks such as cost of transition and impact on credit quality and collateral. It is easier to engage the broader organization on this topic given the high level of interest and positive energy. The key is to monetize it internally and build virtual networks of support teams and enablers.
Thirdly, be in tune with global and local developments as this is an area where the different countries and jurisdictions will progress at a different pace and adopt different pathways to de-carbonize or reduce ESG risk. The goal is to manage these risks on a holistic basis across the world in an orderly manner.
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