Financial Times Europe - 23.03.2020

2 ★ FINANCIAL TIMES Monday23 March 2020

When she was named chief risk officer of

Wells Fargo nearly two years ago, Mandy

Norton became the only woman to run

risk management for one of the top five

US banks. Standing out is nothing new

for the straight-talking Brit, who recalls

being one of the few women on JPMor-

gan’s London trading floor in the 1990s.

“It wasn’t a very comfortable environ-

ment,” she says, describing pub lunches,

golf trips and horseracing jaunts as

events where “you often didn’t get the

invite and if you did it was kind of

uncomfortable to be there”.

Nearly 30 years on, companies in all

sectors are more conscious about foster-

ing an environment that is comfortable

for people across genders, sexual orien-

tations, race and class. Much has been

written on the benefits of women in risk

management, backed by research such

as a 2017 report from accountants Grant

Thornton,showing that they can bring

different perspectives, lessen the like-

lihood of groupthink and improve out-

comes. Groups such as KPMG’sWomen

of Risk Community ffer a space to net-o

work and find support.

A report last year from consultancy

Oliver Wyman,Women in Finance,

showed that women made up 19 per cent

of risk and actuarial professionals on

financial services companies’ executive

committees. But there are signs of

improvement.

Ms Norton says the majority of her

own risk team s male at the seniori

levels, but there are more women lower

down, partly because of a change in the

work. Traditionally, bank risk manage-

ment focused on tasks such as statistical

modelling to calculate market and other

financial risks — skills often seen as

“male”, to the chagrin of many women.

Now there is a greater focus on “opera-

tional risk” management, which ranges

from conduct and culture to ensuring

systems are resilient to tech outages and

cyber terrorism. This development, also

true at other financial services institu-

tions, is not the only evolution the risk

discipline has seen in the past decade.

“The chief risk officer] role has[

become more strategic in nature,’ says

Marlene Debel, CRO of insurance group

MetLife. “A good CRO is an important

strategic partner to the business

and... if you think of risk management

in that light I would hope it’s much more

attractive as a potential career path.”

It was this strategic component that

encouraged Allegra van Hövell-Patrizi

to switch to risk management t Pru-a

dential. An engineer and former McKin-

sey consultant, she was Prudential’s US

envoy during the financial crisis, when

her boss, Tidjane Thiam asked her what

she wanted to do next.

She told him she would love to work in

risk.“It was a speciality that had been

left for way too long to very technical

people but not necessarily people that

could take a holistic view.”In 2013, she

became Prudential’s chief risk officer.

Two years later, she moved to Dutch

pension, insurance and asset manage-

ment group Aegon as chief risk officer.

She found “quite a few” femalecounter-

parts in the Netherlands, though not

necessarily in insurance. At Aegon, she

went out of her way to find talented

women to hire, ncreasing the propor-i

tion from 14 per cent of her top team

when she arrived to 30 per cent now.

“I truly believe in diversity and that

go e s way b eyond gender,” she

says. “When you need to upgrade your

team or replace some people you’re

always going to have the easy good guy

around the corner. It does take a little bit

of effort [to say] if I look just a little bit

more and I’m willing to stand for what I

believe in... maybe I can find that very

talented different person.”

One of the arriers to getting womenb

into risk roles is a scarcity of role mod-

els. Ms Debel started out in an organisa-

tion with a scarcity of women. Few of

the women in senior roles ad families.h

“The message I received at a young

age... was that if you wanted to get to

those levels in your career that meant

you were probably not going to have

children.

“Had I seen women in the executive

ranks who succeeded... and also man-

aged to have a family, that would have

been highly motivational for me,” adds

Ms Debel,who has three children.

She advises female staff that it is

“highly possible” to manage family and

work, and that it gets easier as you

become more senior, as you have more

control over your calendar. Technology

also helps. “When I had my first child, I

didn’t even have a BlackBerry. It was

really stressful. As soon as I got up from

my desk to leave, I thought: ‘Oh my gosh,

if somebody needs me I have no idea’.”

Wells Fargo’s Ms Norton says risk is as

demanding a discipline for women as

other C-suite roles. “I don’t have chil-

dren, I’ve had the ability to move

around. I’ve lived in London, Singapore,

Charlotte, San Francisco,” she says.

“That might be harder for [women with

children]. For a guy too, if you’ve got kids

and they’re in school... My days are

long and I travel a lot, I don’t know that

risk management is any easier than any

other job.”

Women seize chance to rise in

a male-dominated specialism

Gender

Changes in the nature of

banking are whittling down

barriers, but challenges

remain, writesLaura Noonan

Risk ManagementFinancial Institutions

B

anks, insurers and asset man-

agers face a growing threat

from climate change, as the

physical effects of global

warming and the transition

to a low-carbon economy pose unprece-

dented risks to the status quo.

Banks have been quick to capitalise

on rising demand for sustainable finan-

cial products such as green bonds, but

slower to account for the danger of

stranded assets and mispriced risk on

their balance sheets.

The real estate and mortgage markets

are an area of particular concern, the

McKinsey Global Institute has found. In

the US state of Florida alone, McKinsey

estimates that increased flood exposure

could knock $30bn to $80bn off resi-

dential property valuations by 2050.

With increased flood risk and prop-

erty devaluations comes the danger of

mortgage defaults. Many homeowners

have no flood insurance and will be

exposed. Extreme weather and flooding

can also affect people’s livelihoods and

ability to get to work and pay their debts.

“You could have a community break-

down and an infrastructure breakdown

[where] roads are flooding more,” says

Hans Helbekkmo, partner at McKinsey.

This also creates a higher chance of

“strategic default”, where homeowners

walk away from a property once there is

a significant fall in the price, he adds.

“The mortgage lending business

would want to take a close look at this,”

says Mr Helbekkmo. Given that many

mortgages are sold to government-

sponsored enterprises such as Fannie

Mae in the US, “governmentscould end

up holding the bag”.

Banks’ commercial lending arms also

face problems because of exposure to

coal. The fuel is becoming economically

unviable as natural gas and renewable

energy prices drop. Yet many banks still

lend to coal companies and are in danger

of mispricing the risk, says Chris Hohn,

the billionaire hedge fund manager.

Sir Chris has launched a campaign to

compel lenders todisclose their expo-

sure to coal. The risk of a coal loan is“

accounted for by banks and regulators as

investment grade, when in fact they are

high-risk in nature,” he says. The cam-

paign has threatened legal action if they

do not accurately weigh coal risk. “If you

falsely mark a loan or risk weighting you

can have breach of fiduciary duty.”

Banks including JPMorgan Chase

have recently been targeted by environ-

mental activists,which want companies

to stop financing fossil fuel and have

used tactics from filing shareholder res-

olutions to protests at bank offices.

Insurers are also exposed, as they

may be liable to cover legal penalties

against coal companies held responsi-

ble for environmental damage, accord-

ing to a research note by rating agency

Moody’s. “Insurers could.. .benefit

from reduced exposure to potential

environmental liability risks associated

with thermal coal industries,” the 2019

note said. More than 1,300 such law-

suits have been brought against compa-

nies and governments, according to

activist group Unfriend Coal, which

aims to make the sector uninsurable. In

one instance, American Electric Power

said last July that it would retire a

1,300MW unit at its power plant in

Rockport, Indiana, to settle a lawsuit

over air pollution.

So far a number of insurers have

walked away from coal, especially in

Europe, including Axa, Zurich and

Swiss Re. Beyond fear of lawsuits, they

have an incentive to try to mitigate

harm of climate change however they

can — including making it harder to

operate coal-fired power plants.

“As a global insurer we are impacted

by climate change, in everything from

increasing fire risk to flooding,” Joseph

Wayland, general counsel of Chubb, said

in July when it became the first large US

insurer to stop covering coal companies.

As the climate changes, the data and

models used by insurers to set rates

“may well prove insufficient over time

for the rising levels of risk”, warned

McKinsey. The position of participants

“from insured to insurer to reinsurer to

governments as insurers of last resort”,

needed examination, it added.

Insurers also risk losing money on

investments if they own shares in fossil

fuel companies holding stranded assets.

Pension funds, sovereign wealth funds

and asset managers are also likely to be

affected. As much as $900bn worth of

fossil fuel reserves will be written off if

governments take action to keep global

warming under 1.5C, according to FT

estimates in aLex In Depth report.

Yet stranded asset risk may be the tip

of the iceberg for investors. New

research from BlackRock, the invest-

ment management group, suggests that

shifting investor preferences are likely

to drive up prices for “sustainable” com-

panies and punish those that perform

poorly on environmental, social and

governance (ESG) criteria.

They also face mounting pressure

from customers and activists to curb

money going into fossil fuels, but many

investors are hesitant to fully divest.

Instead, many large investors are trying

to engage with companies to push them

to green their operations.

A number of investor groups are

banding together to put pressure on

boards and chief executives, such as Cli-

mate Action 100+, which recently

added BlackRock to its roster. The

group focuses on big emitters, and has

signed up 450 investors with more than

$40tn in assets under management.

However, the results have not lived up

to some activists’ expectations.

“We would celebrate the day the Cli-

mate Action 100+ rises to the challenge

ahead of us. The initiative has involved a

lot of self-congratulation and paper

agreements, and it is untied to real-

world outcomes,” says Brynn O’Brien,

executive director of the Australasian

Centre for Corporate Responsibility.

“If it were to rapidly become more

ambitious, transparent and consistent,

it could be an extremely important

initiative.”

Floods and

clashes over

coal spotlight

climate threat

Environment anks and insurers are underB

pressure on several fronts, writesBilly Nauman

Heating up:

(clockwise from

left) flooding in

the north of

England last

month; coal

mining in

Xinjiang, China;

Chris Hohn has

threatened legal

action against

lenders over

coal risk

Getty/PA Images

Companies

face

pressure

from their

customers

to curb

money

going into

fossil fuels

At the top: Mandy Norton of Wells Fargo, Allegra van Hövell-Patrizi of Aegon and Marlene Debel of MetLife (left to right)

MARCH 23 2020 Section:Reports Time: 3/202019/ - 17:13 User:jerry.andrews Page Name:RMX2, Part,Page,Edition:RMX, 2, 1