Client needs and challenges:

A leading financial institution partnered with CRISIL to develop a responsible lending portfolio that incorporates climate risk principles. The institution sought to enhance its existing framework by integrating climate risk considerations into its lending decisions and overall risk management approach. CRISIL was engaged to help the institution formulate climate risk policies, conduct climate risk assessments, and embed climate resilience into its enterprise risk management (ERM) framework, ultimately supporting the institution's goal of promoting environmentally responsible lending practices.

Solution provided:

To address the client's needs, Crisil provided a comprehensive solution that included: 

• Development of ESG Policy: We drafted an ESG policy to guide the institution's approach to conducting business sustainably, managing all environmental, societal, and governance-related aspects, and aligning with the principles of the United Nations Environment Programme Finance Initiative (UNEP FI). 
• Climate Risk Management Policy: We developed a Climate Risk Management policy to outline the institution's approach to managing climate-related risks and opportunities, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)/ International Financial Reporting Standards (IFRS) S2 Climate-related Disclosures. 
• GHG Emissions Calculator: We created a Scope 1 and 2 emissions calculation model to measure the institution's carbon footprint, and identified relevant emission sources to be captured under Scope 3 Category 15 (GHG Protocol- Investments) based on available activity data. 
• Climate Risk Assessment (CRA) Model: We developed a comprehensive climate risk assessment and management framework, which included:
  
  • Development of A climate risk qualitative assessment model (heat maps) covering physical risks for all districts across India and transition risks for 51 identified sectors and sub-sectors
  • Providing A climate risk dashboard to provide a comprehensive view of climate-related risks
    
• Climate Scenario Analysis and Stress Testing: We prepared climate scenario analysis and stress testing exercise guidelines for internal capital planning, including evaluation of risks and opportunities on a sample basis, using scenarios developed by the Network for Greening the Financial System (NGFS), and aligning with the IFRS S2 Climate-related Disclosures
• Climate Risk Adjusted Credit Rating Model: We suggested a climate risk adjusted credit rating model to adjust the Expected Credit Loss (ECL) and Probability of Default (PD) for enhancing decision-making on sectoral risk exposure
  

Impact  on Client: 

Our solution enabled the institution to integrate climate related risks and opportunities (CROs) into its ERM framework, adhere to regulatory compliance requirements related to climate risk and sustainable finance, and make informed decisions about its lending portfolio.