Driving Low-Carbon Transition: Enhancing Climate Risk Management for a Global European Bank

Challenges.

The client faced several critical challenges in its quest to support the Paris Agreement and manage climate-related financial risks

• Requirement to measure and reduce financed emissions in line with internal Global Climate Change Policy and ESG initiatives.
  
• Need to adhere to TCFD recommendations and BCBS principles for effective climate risk management.
  
• Lack of transparency in financing activities related to carbon and climate-sensitive sectors. 

Solution.

The proposed solution focused on setting up processes that can capture, review every counterparty’s journey to low carbon regime, and assign bank’s own internal ratings on client’s sustainability efforts. These ratings are then used to approve all transactions with the counterparties. 

Client Characterization workflow 

• Client categorization of based on fossil fuel-related industry clients according to their energy transition readiness based on
  • Sector specific guidelines
  • Internal as well as external ESG scores
• Annual review of categorization of in-scope clients

Transaction Approval workflow

• All transactions of in-scope clients pass the approval criteria of the climate risk assessment process.

The Impact.

• Transparency on financing to carbon-related and climate-sensitive sectors in line with TCFD recommendations
  
• Adherence to BCBS principles of effective management and supervision of climate related financial risks
  
• Helped achieve the targets in line with internal Global Climate Change Policy and ESG initiatives and targets.
  
• Encouraged the bank’s clients to transition to low-carbon activities