Lukky’s career has been built working with leading banks and consulting practices including HSBC, Lloyds Banking Group and Accenture. He is also one of two co-founders of Kube Risk, a challenger consultancy specialising in Credit Risk, and will be one of our expert panel members for our upcoming Broadgate Search Social webinar on 28th Jan.
We caught up with Lukky discuss the topic of climate risk in-depth, as well as what one key point he hopes people will take away from our upcoming webinar.
What led you to work in the climate risk sector?
I started to look into Climate Risk as I’d heard a lot about Climate Change but noticed there was very little (if any) coverage on how Climate Change ties into financial markets. Other than some keynote speeches and occasional papers, I was surprised at how little information was available.
I then spoke to current and ex-colleagues at some of the largest UK Banks/consultancy firms and that’s when it became clear that nobody really understood what climate change really meant for their firms.
What they would be somewhat aware of (depending on their roles) was about this etherical topic – ESG. But Climate Risk is a very specific pillar that sits within it.
I’m not one to shy away from a challenge and knowing that Climate Risk was still being ‘figured out’ by Central Banks as well as the firms they supervise, I decided it’s exciting and important enough for me to contribute.
Myself and my co-founder then went about speaking to some of the UK’s (and world’s!) brightest minds in Climate Science, economics and artificial intelligence – and together, we’re now building a revolutionary data and analytics platform called Climate X.
What are the characteristics of climate risk?
This is a great segue from the previous question! The characteristics of climate risk are quite broad-reaching, but in simple terms – we’re looking at how future potential climate pathways might cause harm – to business models, infrastructure, assets, cashflows and society as a whole.
With wide arms, we can group their implications into three key areas that impact financial markets and stability:
Physical Risk: what you probably imagine when you think of climate change; the impacts that arise from climate and extreme weather events, such as floods and storms that damage property or disrupt trade;
Transition Risk: the financial risks associated with the cost of moving to a net-zero carbon economy for both consumers and businesses alike - the more disorderly the transition, the higher the transition cost is likely to be;
Liability Risk: the impacts to insurers and legal firms relating to both changes in policy but also increasing risk of loss claims, including failure to disclose significant risks that may impact market valuations
In reality, there could be any number of combinations by which these risks manifest – and depending on the scenarios, some may dominate more than others.
Firms will need to be able to flex their strategies to accommodate a range of scenarios and possible outcomes in the real world.
Tell us about Kube Risk.
Kube Risk is a challenger consultancy that specialises in all things Credit Risk.
We run an associate model bringing in ‘ready to roll’ teams that are best placed to deliver what the clients need without the frustrations that usually come with the bigger players.
No benched staff. No fitting square pegs into round holes. No ‘on-site training’ at the client’s expense. No glitzy offices. Just results.
What is it like working at Kube Risk?
It’s been a whirlwind of a ride – going live with a new business at the peak of Covid has been an incredible experience. Having built my career working in large corporates, the start-up world is about as far away as you can get from that.
I get to exercise my creativity, jump hurdles, deal with problems and make progress every day.
Climate X has added a new and exciting dimension – and we can’t wait to tell people more about it once it’s ready.
Is it hard work? Yes. Do I get a day off? No.
BUT, it’s a really exciting place to be, I get to meet amazing new people every day, and I love every second of it!
We’re seeing more news relating to climate risk regularly, what do you believe companies should be taking note of?
The pace at which climate-related news is being delivered is definitely picking up, and it can be daunting to know where to start and what to focus on.
Before we dive into companies – it’s important to acknowledge the obvious – companies are ran by people. And those individuals need to be open to learning about what climate change is and what it might mean to them. That’s how the journey starts.
As for companies and what they should take note of
Regulatory consultations, guidance and policy (including advisory papers)
TCFD standards and disclosure commitments/standards – these are becoming increasingly adopted as de-facto standards
Legislation – how exposed are you to legal risks?
Data providers and advancement in climate-tech – things are changing rapidly every day
Best practice (look beyond your own industry for precedents that might be working elsewhere)
What is one key point you’d like our community to take away from our upcoming webinar ‘Climate Risk - Regulations and Beyond?’
Time is running out and steps have to be taken today to start addressing the risks relating to climate change.
The efforts will need to be significant but asides from having to comply with regulations – it makes sound financial sense to invest in this area and reflect the climate in business strategies.
Doing nothing, simply isn’t an option.
What will be the socio-economical impact of climate risk?
I’ve written on this point at some length in a post on my LinkedIn page – the real VAR; our Values At Risk.
What we mustn't lose sight of are the deeply damaging financial and psychological impacts this has to the everyday people who live in those properties.
And they're not just properties; they're the homes of real families. The beating heart of strong communities.
Failing to take action to mitigate the risks relating to climate change creates its own set of risks that will impact the poorest and most vulnerable in society disproportionately.
Asides from the threat of future weather events - people in affected communities are now fearful of the latent consequences of the actual floods or fires themselves:
Soaring costs for insurance premiums
Being priced out of home ownership as lenders adjust pricing and lending models
Stranded communities and assets
Increased joblessness and reduced social mobility
Future generations, left without hope
This isn’t just a UK threat – but a global one.
What can decision-makers do, to support a greener organisation?
Practical ways to translate the observations into actions would need to be driven from the Board and C suit execs down:
Acknowledging that Climate presents real threats and opportunities, and that they need to be taken seriously
Integrate climate risk management (along with wider ESG) across the organisation’s risk management framework
Hire the right people – the skills required to address climate change may not exist within your organisation – so bring them in from outside to help shape your policies and actions
Obtain data and develop analytics, including scenario analysis to quantify, manage and mitigate any potential risks – this may well mean looking to unconventional partners and sources
Asides from risks, develop strategies that will take advantage of the opportunities – the green revolution represents a once in a generation chance to tap into new markets, products and customers
Transform customer onboarding and new lending processes to capture green credentials upfront
Transition your own business to a greener operating model that will be fit for a carbon zero economy – and do it today
What NOT to do – greenwashing. Please, please, please do not try to brush this under the carpet of a sea of pretty pictures or nice words. What matters here is substance and action.
Doing anything other than taking this seriously – across the entire organisation – will be damaging in the long run to the company and value returned to shareholders, whilst also opening up a swathe of non-financial risks.
What do you think the financial impact of climate risk will be to the global economy?
The global economy is already being impacted by climate risks. Business models are already under threat as policy makers ban or severely restrict certain types of trade/business.
There is a flight to ‘green’ and we’re seeing trillions of dollars being committed to financing sustainable and green initiatives.
Physical impacts of climate change are resulting in record breaking levels of damage from severe weather events, following by yet more record-breaking levels of insurance claims.
In 2020 alone, the US faced over 20 ‘billion-dollar’ disasters costing nearly 400bn USD in damages. Australian bushfires cost at least 100bn USD. Flood damage in the UK costs nearly £1.5bn each year – rising each year.
These disasters are only getting more frequent, more widespread and more severe. Nowhere and nobody is immune.
Asides from the cost of immediate damage to assets and infrastructure – the cost of disruption to business is unquantified but likely to run into the billions.
The total effects aren’t point in time – they will be latent – setting the clock back on progress for years to come.
And let us not forget - that these events impact real people and real lives.
A disorderly transition to net-zero by 2050 (or failure altogether!) will be devastating.
The disruption caused by Covid-19 serves only as a preview of what could come to pass if Climate Change spirals out of control.
It’s incumbent on all of us to act now, and to do so with urgency.
Where do you see climate risk in five years?
That will ultimately be determined by what we do now. If we act with the right level of urgency, make the necessary investments to go above and beyond ‘minimum standards’ and really embrace the changes required, the impacts of climate risk can be turned into opportunities.
Some firms will do better at this than others. The real question is – where do they want to be?
Join us on 28th January, for our webinar ‘Climate Risk - Regulations and Beyond,’ where we will hear more from Lukky and our expert panel.
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