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ESG Risks

Following the adoption of the Paris Agreement on climate change and the UN 2030 Agenda for Sustainable Development, governments are making strides to transition to low-carbon and more circular economies on a global scale. Institutions should take a strategic, forward-looking and comprehensive approach to considering climate-related and environmental risks known as ESG Risk.

Following the adoption of the Paris Agreement on climate change and the UN 2030 Agenda for Sustainable Development, governments are making strides to transition to low-carbon and more circular economies on a global scale. Institutions should take a strategic, forward-looking and comprehensive approach to considering climate-related and environmental risks known as ESG Risk.

On the European front, the European Green Deal sets out the objective of making Europe the first climate-neutral continent by 2050. The financial sector is expected to play a key role in this respect, as enshrined in the Commission action plan on financing sustainable growth. Governance, Taxonomy and Risk Strategies.

Physical and transition risk drivers impact economic activities, which in turn impact the financial system. This impact can occur directly, through for example lower corporate profitability or the devaluation of assets, or indirectly, through macro-financial changes.
 

How Deloitte can help?

Our extensive experience can help you to implement ECB Guide in many ways, including:

  1. Governance - update risk frameworks and policies for relevant risk types and integration of climate risk within Risk Appetite and management reporting metrics.
  2. Risk management - establish a uniform risk taxonomy and risk categories and support in creating tools to identify and assess physical and transition risks.
  3. Data and tools - scenario analysis, ESG scoring, risk and control assessments.
  4. Risk assessment - calibrate PD and LGD considering climate risk, quantify climate-related concentration risk, and potential losses due to market risk, and integrate climate risk into the Operational Risk Assessment Map.
  5. Loan Origination, product structures, and monitoring.
  6. ESG Gradings and green assets screening.
  7. Climate and environmental materiality assessment.
  8. Collateral geo-mapping to determine physical risk.
  9. ESG rating and loan origination.