INTERVIEW
CLIMATE-CHANGE RISK
Banks and mortgage providers “sleepwalking into disaster” CEO reveals blind spot for lenders
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s the co-founder and CEO of climate-risk data analytics provider Climate X, Lukky Ahmed knows full well what happens when the banking sector makes the wrong call on risk assessment. “I spent a lot of my time and career within stress testing. This was off the back of eight or nine financial crises, and we saw what happened when bankers got it wrong when it came to risk management. Generally, it’s the more vulnerable in society who are paying the price for these types of issues,” he told Mortgage Introducer. Watching extreme weather events like the devastating wildfires in California and the Amazon rainforest two-and-a-half years ago finally spurred him into action. Driven by his expertise in the field, including 15 years’ experience in risk assessment, he set about creating his pet project. The result was Climate X, a novel platform for climate-related risk data and analytics that’s powered by artificial intelligence (AI) and geospatial modelling. Designed to deliver assetlevel risk ratings and climate-adjusted loss estimates, the platform is aimed at enabling mortgage providers to take climate risk into account as part of new lending/originations. However, in Ahmed’s view, the mortgage industry has been slow to incorporate climate-risk assessment in its calculations, despite the fact the UK government released its first report on the subject back in January 2012. “Two years ago, nobody wanted to really know. There wasn’t really
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MORTGAGE INTRODUCER JULY 2022
Lukky Ahmed
any intent to adopt this type of data. It was too complex,” he said, adding that the industry treated the issue as though it were “a can of worms.” This was especially so when the COVID pandemic came along. “Banks and mortgage providers are being increasingly exposed to these risks in the real world, [but] they haven’t appropriately adjusted their strategies, and they’re sleepwalking into disaster. “Luckily for us, something called the Network for Greening the Financial System [NGFS], which is a collective of 114 central banks, are all working together to deploy regulations now that are forcing the accounting of climate-related risks for the first time.” Founded in 2017, the NGFS aims to fast-track the scaling-up of green finance as well as develop recommendations for central banks’
role in climate change. Among the big hitters to have signed up to the initiative is the Reserve Bank of India (RBI), which joined the NGFS in April last year. For Ahmed, momentum is building behind climate-change policies, and that means that the London-based firm can only grow. “People understand that it’s going to fundamentally change the way that they do business,” he said. “Banks need to account for these things; they need to have budgets unlocked to respond to these types of risks and help their customers to become more resilient in order to protect their own positions and protect the shareholders’ interests.” But is it really possible to accurately predict climate change risks decades in advance? “What we are not trying to do is to say that on a particular date in the future, at this particular time, in this particular location, this is exactly what’s going to happen,” he said. “What we’d like to do instead is to say that based on certain conditions … we set expectations for what might happen in the future, decades in advance.” That might mean obtaining an accurate model on floods or subsidence based on general trends and macro-level studies that incorporate data related to temperature changes and sea level rise – and Climate X can pinpoint a specific location and UK address. “[As a lender] what I care about is what’s going to happen to my specific assets that I lend against. How might those assets or properties be affected? This is where we come in,” he said. www.mortgageintroducer.com
