Non-financial risks related to Information Security & Cyber, Climate Change & ESG, Pandemics & Resiliency, Reputational Risk, and Technological Innovation/ Digital Risk are emerging. Traditional forms of credit and portfolio analysis need to be augmented with new ways to consistently identify, assess and measure these risks so that they can be incorporated in credit decision processes, risk appetite statements, portfolio management, as well as strategic planning exercises.

As the pandemic has made all too clear, unanticipated events can wreak havoc across every aspect of human life. For those charged with managing credit portfolios, identifying, measuring, and managing non-traditional risks has gained considerable urgency in these uncertain times. Against this backdrop, the IACPM has collaborated with the Boston Consulting Group to survey 45 financial institutions around the world about their practices and aspirations for managing the non-financial risks in their credit portfolios.

While the majority of surveyed institutions have begun to develop governance, risk management frameworks, and analytics for the non-financial risks in their portfolios, few among them believe their capabilities have reached the necessary level of maturity and sophistication in their risk management systems.

Key challenges related to this process are the difficulty in quantifying non-financial risks and the complexity of incorporating them into the existing risk management and risk appetite frameworks. The white paper explores the various ways institutions are responding to these challenges and redefining best practice in non-financial risk management.

White Paper: Non-Financial Risks Reshape Banks’ Credit Portfolios