NEW REPORT AVAILABLE!

Report of the C-ESG Risk Roundtable Data Workstream

Brussels, 17 December 2024 – The new report of the Data Workstream of the C-ESG Risk Roundtable (link) explains how the climate change and biodiversity and ecosystems-related disclosures of non-financial corporates under the CSRD could be used by banks for risk management purposes. It presents a starting point for better dialogue between banks and non-financial corporates, ultimately feeding into the results of key processes, such as customer due diligence, customer risk assessments and credit ratings.

Key disclosure requirements

The following types of disclosure requirements by corporates are considered as highly useful for risk assessment and risk management processes of banks:

Assessment of inherent risk:

• To assess physical climate-related risk drivers, banks need granular information on the locations and significance of their counterparties’ assets.
• To assess transition-related climate risk drivers, banks would require datapoints on emissions (scopes 1, 2 and 3) as well as the production output associated with those emissions.
• For biodiversity & ecosystems-related disclosures, quantitative information, such as analysis and assessments covering material geography-level impacts and sensitivity on the associated risk drivers are seen as useful information. Banks also generally consider relevant and useful to understand whether any land use or site-specific locations have been identified as having a negative biodiversity-related impact or being highly dependent on certain ecosystem services.   

Risk mitigation actions:

• CSRD requirements across climate-transition, physical and biodiversity & ecosystems-related disclosures associated with transition plans both at a portfolio and customer level are assessed as a key component for banks’ risk mitigation assessment.  Banks’ own transition plans function as an aggregate of these plans, thus mirroring their underlying quality.
• Information and datapoints associated with counterparties’ transition planning are assessed as key for both climate- and biodiversity & ecosystem-related aspects.
• In addition, detailed information on insurance coverage and business continuity planning is considered helpful to assess the possible mitigation of existing physical risk drivers.

Financial materiality of the residual risk:

• Banks are required to assess the financial materiality of the residual risk; thus, the overall result would benefit from a quality assessment conducted by the corporates themselves, as the information on counterparty revenues, and cost projections, and as well as the value of potential stranded assets are considered necessary; – especially in the loan origination and monitoring processes of banks.
• While the analysis across the industry for biodiversity & ecosystem-related disclosures require further maturity, the details of existing assessments remain highly important.
• Banks would expect corporates to provide further information on the remaining uncertainty within the conducted analysis and assessment.

Information on the methodology of the performed assessment:

• Where corporates disclose information on assessments of the effects of transition and physical risk factors, banks would also benefit from information on the scope of the analysis (including at least the key risk drivers considered), the associated time horizons, the materiality of those factors, and the scenarios that were applied when performing the analysis
• Overall, the same conclusions and request for granular information consider both climate and biodiversity & ecosystems-related disclosures.