New Basel Requirements - Integrating ESG in Banks Risk Management (USA)

Introduction to climate change and financial risk

• Climate change and financing:
  • Climate change basics
  • Main actors
  • Disambiguation
• Transmission of climate change risks to other financial risks
  • Physical risks to credit risk
  • Transition risks to credit risk
  • Physical and transition risks to other prudential risks, to credit risk
• The regulatory landscape for credit risk and financing
  • EU regulation
    • ECB and EBA’s climate and credit guidelines
    • CSRD reporting on credit risks
  • UK’s PRA climate and credit risk work

Managing climate driven risks in the credit origination process

• Judgemental credit evaluation: integrating climate in the 5 C’s of credit origination:
  • Character
  • Capacity
  • Capital
  • Collateral
  • Conditions
• Credit portfolio management:
  • Moving from sustainability policies to risk appetite statements
  • Key Risk Indicators
  • Use of heat maps and climate risk scorecards
  • Portfolio management tools:
    • PCAF
    • PACTA
• Statistical credit evaluation:
  • Integrating climate factors
  • Shadow PDs
  • Inclusion of climate variables in credit risk models

Regulatory integration of climate driven credit risks

• Climate integration for Pillar 2 of Basel II’s internal capital adequacy assessment processes
  • Credit risk
  • Concentration risk
  • Residual risk
  • Legal and Compliance risk
  • Economic and Regulatory environment
• Forward capital planning and climate
  • Business risks
  • Strategy
  • Stress tests
  • Governance
  • Culture
• Climate risk disclosure requirements
  • The EU’s CSRD
  • UK’s Climate-related Financial Disclosure Regulations 2022
• Navigating data limitations

Our ESG in bank management course trainer has 15 years of experience in the banking sector. She has worked across credit risk and risk analysis, including climate scenario analysis and stress testing for banks such as KBC, OTP and Raiffeisen Bank. At KBC, she was a senior risk manager, leading in developing and implementing credit risk management toolkits for measuring and monitoring ESG/climate risks and opportunities, and reporting those to the Executive Committee. Notably, she performed transition and physical climate risk materiality assessments based on scenario narratives, implemented PACTA methodology for the loan portfolio and contributed directly to the European Central Bank’s climate stress test by the firm.

More recently, she delivered consultancy, in the role of Principal Consultant on the topics of ESG and credit risk; she also established the climate and environmental risk management services offering for a consultancy firm.

She holds an MSc in Finance and Actuarial Sciences, a PhD, and a specialisation in Corporate Finance from the Corvinus Management and Business Administration Doctoral School in Budapest. She is also a certified financial analyst and certified risk manager (CFA – Chartered Financial Analyst, FRM – Financial Risk Manager, PRM – Professional Risk Manager), and also obtained the GARP Sustainability and Climate Risk (SCR) Certificate.

• To have a thorough understanding of how credit risk is affected by climate-change-driven physical, transition and liability risks.
• To apply materiality assessment at the loan portfolio level.
• To have an overview of how to integrate sustainability risks, particularly those stemming from climate change, within bank-level risk frameworks.
• To comply with current regulatory requirements and/or recommendations.
• Assess and utilise key sustainability data sources.

• Focus on the financial materiality that sustainability risks have on credit risk exposures.
• Insight into practical aspects of designing and adapting risk frameworks to climate-driven credit risks.
• A thorough review of related academic research and its implications.
• Perspective based on international experience in ESG.
• Practical insights on sustainability risk regulations and the implications for implementation by banks.

Our ESG in bank management course is a 'must-know' for:

• Risk professionals of banks
• Compliance professionals of banks
• Senior credit officers
• CROs

Sustainability factors have arguably always been part of sound credit risk management. However, with the increase in impacts and importance of sustainability, and particularly climate change, the relative weight of these factors is growing. From one of many minor factors that is to be taken into account, climate has grown in importance in credit management over the last seven years.

This growth of incorporation of ESG in credit risk dates back to 2016 with the support of UNEP-FI, as it launched initiatives to enhance the transparent and systematic integration of ESG factors in these assessments. Since then, it’s been recognized that poor management of environmental, social and governance factors can lead to financial, reputational and regulatory risks that may result in negative financial consequences for companies and a bank’s loan book. As evidence consolidates around the fact that ESG factors can affect financial performance and credit risk, ESG considerations are gaining prominence across banks and risk management professionals, but also regulators such as the European Banking Authority (EBA) and the European Central Bank (ECB).

Our ESG integration in bank risk management training course helps participants understand the overlap between ESG, particularly climate change, and credit risk. It clarifies how ESG can be integrated into a bank's traditional risk frameworks. Our training course goes in-depth on how ESG factors can drive credit risk, and how leading banks are adapting to better identify, monitor and mitigate these.