Advising on climate risk management and TCFD reporting

THE BACKGROUND

The impact of climate change will prompt substantial structural adjustments to the global economy. Such fundamental changes will inevitably impact the balance sheet and the banks' operations, leading to risks and opportunities. Meanwhile, regulators are beginning to act, and investors, clients, and civil society are looking for actions, mitigation, adaptation, and transparency on the issue. Historically, banks have approached climate change through the lens of Corporate Social Responsibility (CSR). With increasingly high financial stakes, growing external pressures, and new regulations, more than the pure CSR approach is required. Climate change has become a financial risk for banks and must be treated as such; new approaches have to be implemented to capture climate-related risks and opportunities.

THE PROJECT

In 2023, under a European Investment Bank and Adelphi contract, FINANCE FOR IMPACT advised Citadele Banka, a leading Latvian bank and financial and asset manager in the Baltic States. We helped Citadele to meet regulatory expectations on climate risk, design climate scenarios and stress test exercises, and implement the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD). FINANCE FOR IMPACT worked under the assumption that climate scenario analysis serves as a “what-if” analysis and was a useful tool to quantify the potential exposures of the institution to transition and physical risks.

THE RESULTS

FINANCE FOR IMPACT helped quantify, report, and manage climate impacts. In particular, we provided support regarding the conceptualization of processes for TCFD-aligned reporting, including support in identifying gaps and respective solutions in current sustainability reporting vis-à-vis TCFD requirements. Tasks included capacity-building for:

• Climate stress testing to meet the highest regulatory standards
• Climate modeling support (scenario analysis)
• Incorporation of climate risk and opportunity considerations into credit decision-making processes
• Designing and implementing effective climate-risk management frameworks
• TCFD reporting, including support for the preparation of the Bank’s first TCFD report.