New Basel, EBA and PRA requirements - Integrating ESG in banks risk management

Introduction to Prudential Regulation: The Intersection of Climate Change and the Risk Exposure of Banks

• This ESG risk management course explores the regulatory landscape for credit risk and financing:
  • EU regulation
    • ECB and EBA’s governance guidelines for climate-related financial risk disclosures
    • Corporate Sustainability Reporting Directive (CSRD) on credit risks
  • UK’s Prudential Regulation Authority (PRA) climate and credit risk work
• Climate change risk to business 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 g. “ESG credit risk”

Managing Climate-Driven Risks in the Credit Origination Process

• Judgemental credit evaluation: integrating climate in the 5 C’s of credit origination process:
  • 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:
    • Partnership for Carbon Accounting Financials (PCAF)
    • Paris Agreement Capital Transition Assessment (PACTA)
  • Statistical credit evaluation:
    • Integrating climate factors
    • Shadow Probability of Default (PDs)
    • Inclusion of climate variables in ESG credit risk models.

Regulatory Integration of Climate-Driven Credit Risks

• ESG operational risk training looks at climate integration for Pillar 2 of Basel II’s internal capital adequacy assessment processes:
  • ESG and Credit risk
  • Concentration risk in banking
  • Residual risk in banking
  • Legal and Compliance Risk
  • Economic instruments for environmental regulation
• Forward capital planning and climate:
  • Business risks
  • Strategy
  • Stress tests
  • Governance and Risk Management practices in Banks
  • Culture
• Climate risk disclosure requirements:
  • The European Union EU’s CSRD
  • UK’s Climate-related Financial Disclosure Regulations 2022
• Navigating data limitations

This ESG risk management course is delivered by a trainer with 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 the development and implementation of credit risk management toolkits for measuring and monitoring ESG/climate risks and opportunities. 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 directly contributed to the European Central Bank’s climate stress test by the firm.

More recently, this ESG operational risk training expert 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.

The credentials of our ESG risk management course trainer are expansive. 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 obtained the GARP Sustainability and Climate Risk (SCR) Certificate.

• ESG operational training covers an overview of the emerging regulatory landscape around the integration of climate prudential regulation.
• How Basel II credit risk management is affected by climate-change-driven physical, transition and liability risks.
• Apply materiality assessment at a loan portfolio level.
• How to integrate sustainability risks, particularly those stemming from climate change, within bank-level risk frameworks and climate-related risk disclosure.
• This ESG risk management course ensures you will be able to comply with current regulatory requirements and/or recommendations.
• Assess and utilise key sustainability data sources.

• Expect to gain a deep understanding of the requirements of financial regulators in the UK and Europe around integrating ESG.
• Focus on the financial materiality that sustainability risks have on 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.
• This ESG risk management course provides practical insights into sustainability risk regulations and the implications for implementation by banks.

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

• Risk professionals of banks
• Compliance professionals of banks
• Senior credit officers
• CROs (Chief Risk Officers)

Sustainability factors have always arguably been part of sound risk management. However, with the increase in impacts and the importance of sustainability, particularly climate change, financial regulators are now stepping in to recommend or require that banks identify, manage and mitigate related risk exposures.

This growth of incorporation of ESG in credit risk dates back to 2016 with the support of the United Nations Environment Programme Finance Initiative (UNEP-FI), as it launched initiatives to enhance the transparent and systematic integration of ESG factors in these assessments. Since then, it’s been recognised that poor management of Environmental, Social and Governance (ESG) factors can lead to financial, reputational and regulatory risks that may result in negative financial consequences for companies and a bank’s loan book; intricacies that are highlighted in this ESG operational risk training. As evidence consolidates around the fact that ESG factors can affect financial performance and credit concentration risk in banks, ESG considerations are gaining prominence across banks, risk management professionals, and regulators such as the European Banking Authority (EBA) and the European Central Bank (ECB).

This ESG operational risk training helps participants understand the overlap between ESG, particularly climate change, financial disclosure, and credit risk. It clarifies how ESG can be integrated into a bank's traditional risk frameworks, how ESG factors can drive credit risk, and how leading banks are adapting to better identify, monitor and mitigate these.