Effective Management of Climate-Related Financial Risks

Effective Management of Climate-Related Financial Risks: An Opportunity for Financial Institutions in the Middle East

As climate change alters the economy, financial institutions (FIs) face increasing risks from climate-related disasters and regulatory/technology changes. These FIs are not only taking measures to tackle these growing risks but also playing pivotal roles in driving the transition to a sustainable economy. Recognizing the importance of FIs in advancing sustainability, regulators across the Middle East are introducing initiatives to encourage and mandate the adoption of sustainability measures within these institutions.

Market Readiness for ESG Adoption

Globally, banks and regulators in Europe have led the adoption of ESG and climate risk mitigation practices. In the Middle East, financial markets are aligning with national sustainability agendas, driven by regional regulators urging banks to develop comprehensive ESG strategies. Despite global benchmarks, substantial efforts are required to adapt these practices to local market conditions, necessitating a deep understanding of regional dynamics and strategic customization.

How Deloitte Can Help

Deloitte has delivered several successful climate risk and ESG engagements in the Middle East and worldwide, covering ESG strategy, emissions computations, decarbonization, and climate risk reporting. Our extensive experience positions us to support your organization effectively in its ESG journey. We offer the following services:

• Sustainable Finance Framework: Developing and implementing comprehensive frameworks for sustainable finance, ensuring alignment with regulatory requirements and industry best practices.
• Climate Risk Quantification, Stress Testing, and Reporting Advisory: Providing expert guidance on quantifying climate risks, conducting stress tests, and developing robust reporting frameworks to meet regulatory and stakeholder expectations.
• Target Operating Model Development: Crafting operating models that integrate ESG considerations into core business functions.
• Policy and Framework Development: Establishing policies, procedures, and frameworks to govern ESG initiatives.
• ESG Integration into the Credit Lifecycle: Assisting in integrating ESG considerations throughout the credit lifecycle, from credit risk assessment to lending decisions, to enhance sustainability and risk management.
• Enhancement of ERM to ESRM: Upgrading traditional Enterprise Risk Management (ERM) frameworks to incorporate Environmental and Social Risk Management (ESRM), ensuring a holistic approach to risk management.
• Green Finance Issuance: Advising on the issuance of green finance instruments, including green bonds and loans, to support sustainable projects and initiatives.
• ESG and Climate Risk Training: Offering tailored training programs to enhance understanding and capabilities in managing ESG and climate-related risks across your organization.
• Benchmarking ESG Practices: Conducting benchmarking of ESG practices in line with industry good practices to ensure your organization remains competitive and compliant.
• ESG Governance, Policy, and Strategy Development: Drafting, reviewing, enhancing, and developing ESG governance, policies, procedures, and strategies, including setting short-term and long-term goals.
• ESG Reporting Templates: Developing ESG reporting templates as per international benchmarks and guidelines to ensure consistent and comprehensive reporting.
• Materiality Assessment and Reporting: Conducting materiality assessments and aligning reports with internal and external stakeholders to identify and communicate key ESG issues.
• Data and Reporting Templates: Developing and enhancing questionnaires, data templates, and reporting templates for internal use (banks) and external partners (suppliers, customers, borrowers, and outsourcing agents).
• Climate Risk Scenario Development: Developing and enhancing climate risk scenarios based on international and regulatory guidelines, and creating stress testing models that incorporate these scenarios.
• ESG Integration in Credit Lifecycle: Integrating climate risk and ESG frameworks into the entire credit lifecycle, from credit onboarding and assessment to ratings, approval, monitoring, and reporting.
• Stakeholder Engagement: Facilitating dialogue and collaboration with stakeholders on ESG matters to build consensus and drive initiatives forward.

Deloitte has developed multiple tools and standardized frameworks for integrating climate risk and ESG into banks’ operations. We leverage these to accelerate the delivery of our climate risk engagements. Our global team of subject matter experts has a firm grasp of the intricacies of climate risk, enabling us to draw from collective insights for high-quality deliverables.

Deloitte’s regularly collaborates with various financial institutions to ensure that they can effectively manage climate-related financial risks and lead the transition towards a sustainable economy.