Climate Risk Portfolio Exposure Analysis & Scenario Analysis Advisory
The PRA has stated clearly that the identification of Climate Risk is a key strategic objective for banks between 2020-2025 and that they are required to identify and assess their level of exposure to Climate Risk. Our client – a bank with Private, Corporate and Investment Banking businesses – had no pre-existing Climate Risk exposure analysis conducted on its area of operations and engaged our team of ESG experts to assess their level of Climate Risk exposure and help them to meet the PRA’s SS3/19 requirements.
Developing Climate Risk methodologies to assess the exposure of our client’s Private Banking, Corporate and Investment Banking businesses to Climate Risk
The team got to work quickly to deliver:
- Tailored Climate Risk methodologies were created, defined and assessed against the Private Banking and Corporate and Investment Banking portfolios of the bank
- Transition Risk and Physical Risk methodologies assessments and heatmaps were produced on the following areas:
- Carbon Intensive Sectors
- Carbon Intensity across Financing Activities – recommended metric as per TCFD within Metrics and Targets theme
- Sea and River Flooding Risk and Surface Water Flooding Risk
- Real Estate Portfolio Analysis – Energy Performance Standards
- Carbon Intensive Sector, Carbon Intensity across Financing Activities and Weighted Average Carbon Intensity metrics were embedded within an existing UK Risk Management Framework, committee agenda and charter.
- Recommendations have been provided on scenario analysis development, including guidance on scenario selection, stress methodologies and data selection
Our tailored solution enables Senior Managers across the bank to understand the level of exposure to Climate Risk on key portfolios and monitor them through metrics and controls embedded within the existing risk management framework. We have also created a clear roadmap which will enhance the bank’s scenario analysis capabilities going forward.