Climate & ESG Risk Management

Embed climate, nature, and ESG risk into credit decisions, capital planning, and prudential reporting.

  • European regulators — the ECB, EBA, EIOPA, and national supervisors — expect financial institutions to identify, measure, manage, and disclose ESG risks with the same rigour applied to credit, market, and operational risk. We help banks, insurers, and asset managers build the risk frameworks, data infrastructure, and governance processes required to meet supervisory expectations and protect balance sheet resilience.

Who This Is For

Chief Risk Officers, Heads of ESG Risk, Credit Risk Managers, and Risk Governance teams at banks, insurers, asset managers, and development finance institutions navigating EBA ESG guidelines, ECB supervisory expectations, and emerging Pillar 3 ESG disclosure requirements.

What We Deliver

EBA ESG Guidelines Implementation

The EBA Guidelines on ESG risk management require institutions to integrate ESG factors into risk identification, measurement, and monitoring across all material risk categories. We design the implementation architecture: ESG risk taxonomy development, risk appetite statement integration, sector-level ESG heatmaps, and the internal governance adjustments required to demonstrate compliance to supervisors.

ECB Supervisory Expectations Alignment

The ECB's Guide on climate-related and environmental risks sets 13 supervisory expectations covering governance, strategy, risk management, and disclosure. We conduct gap assessments against these expectations, design remediation roadmaps, and support institutions through supervisory dialogue — translating regulatory language into operational risk management practice.

Climate Risk Quantification & Stress Testing

Physical and transition risk quantification using scenario analysis aligned with NGFS scenarios. We design and calibrate climate stress tests covering credit portfolio impact, collateral valuation adjustments, sectoral exposure analysis, and P&L sensitivity. Outputs are formatted for both internal risk management and supervisory reporting requirements.

ESG Risk Integration into Credit Decisions

Moving ESG from a parallel assessment to an integrated credit decision input. We design ESG scorecards for counterparty assessment, sector-level ESG risk overlays for portfolio management, and early warning indicators that flag ESG-driven credit deterioration before it materialises in financial metrics. The goal: ESG information that changes lending decisions, not just reports.

Physical & Transition Risk Assessment

Comprehensive climate risk assessment covering both physical risks (acute and chronic hazards at asset and portfolio level) and transition risks (policy, technology, market, and reputational factors). We structure assessments to satisfy both TCFD recommendations and emerging regulatory requirements, with clear links between risk identification and risk appetite.

Regulatory Context

This practice is driven by:

    • CRR III (Regulation (EU) 2024/1623) — Integration of ESG risk into the Pillar 1 prudential framework for banks; new environmental, social, and governance risk factor provisions in credit risk calculations.

    • CRD VI (Directive (EU) 2024/1619) — ESG integration into bank governance, ICAAP/ILAAP, Supervisory Review and Evaluation Process (SREP), and fit-and-proper requirements.

    • Solvency II — Sustainability Amendments — Prudential requirements for insurers to integrate sustainability risk into governance, risk management, and investment decisions.

    • SFDR (Regulation (EU) 2019/2088) — Product-level disclosure requirements that create data demands for risk management functions. → SFDR Guide

    • EU Taxonomy Regulation — Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR) prudential reporting obligations. Article forthcoming.

    • CSRD / ESRS — Counterparty-level sustainability data enabling credit risk assessment and portfolio monitoring. → CSRD Guide

    • IORP II — Sustainability Amendments — Governance and risk management requirements for occupational pension institutions.

    • BRRD (Bank Recovery and Resolution Directive) — Emerging consideration of climate-related risks in resolution planning and resolvability assessments.

    • EBA Guidelines on ESG Risk Management (EBA/GL/2025/01) — Comprehensive expectations for banks on ESG risk identification, measurement, monitoring, and management across all risk types. Article forthcoming.

    • EBA Report on the Role of ESG Risks in the Prudential Framework — Analysis of how ESG risk drivers transmit to traditional prudential risk categories.

    • EBA ITS on Pillar 3 ESG Disclosures — Implementing Technical Standards specifying templates and instructions for prudential ESG risk disclosure.

    • ECB Guide on Climate-Related and Environmental Risks (November 2020) — 13 supervisory expectations covering governance, strategy, risk management, and disclosure for SSM-supervised banks.

    • ECB Climate Stress Test Methodology — Scenario-based climate risk stress testing framework applied to significant institutions.

    • ECB Good Practices for Climate Stress Testing (2024) — Updated supervisory guidance on climate scenario analysis and stress testing techniques.

    • EIOPA Climate Change Materiality Assessment Guidance — Framework for insurers to assess the materiality of climate change risks across underwriting and investment portfolios.

    • EIOPA Staff Paper on Nature-Related Risks — Emerging supervisory perspective on biodiversity and nature-related risk for the insurance sector.

    • Joint ESAs Report on Greenwashing (2024) — Cross-sectoral supervisory analysis of greenwashing risks and expectations for financial institutions.

    • ESMA Sustainable Finance Roadmap and Supervisory Priorities — Securities regulator focus areas for ESG risk oversight in asset management and capital markets.

    • ACPR (France) / BaFin (Germany) Climate Exercises — National supervisor climate risk assessment exercises and industry benchmarking.

    • PRA / FCA (UK) Climate Expectations (SS3/19, PS20/24) — UK prudential and conduct regulator expectations on climate risk management for banks and insurers.

    • ISSB / IFRS S1 & S2 — Global sustainability and climate disclosure standards applicable to financial institutions for their own reporting. → ISSB Guide

    • TCFD Recommendations — Foundation framework for climate-related risk governance, strategy, risk management, metrics, and targets.

    • NGFS Climate Scenarios (Phase IV) — Network for Greening the Financial System scenarios providing the reference framework for climate stress testing and scenario analysis.

    • NGFS Framework on Nature-Related Financial Risks — Emerging framework for central banks and supervisors to assess nature and biodiversity-related financial risks.

    • BCBS Principles for the Effective Management and Supervision of Climate-Related Financial Risks (2022) — Basel Committee principles setting the global standard for bank climate risk management.

    • TNFD Recommendations (v1.0) — Nature-related risk and opportunity disclosure framework with sector-specific guidance for financial institutions. Article forthcoming.

    • IFRS 9 ECL and Climate Risk — Application of expected credit loss models incorporating climate risk drivers, transition risk scenarios, and physical risk overlays.

    • IAIS Insurance Capital Standard — International capital standard for internationally active insurance groups with emerging climate risk provisions.

    • PCAF Global GHG Accounting and Reporting Standard for Financial Institutions — Methodology for measuring financed emissions across six asset classes; prerequisite for target-setting and portfolio alignment.

    • UNEP FI Principles for Responsible Banking — Commitment framework for banks to align business strategy with the SDGs and the Paris Agreement.

    • UNEP FI Principles for Sustainable Insurance — Global framework for insurers to manage ESG risks in underwriting, investment, and claims management.

    • GFANZ Net-Zero Transition Plan Framework — Guidance for financial institutions on credible net-zero transition plans and interim target-setting.

    • CDP Financial Services Questionnaire — Annual climate and environmental disclosure platform for banks, insurers, and asset managers.

    • Climate Action 100+ Net Zero Company Benchmark — Investor-led engagement benchmark assessing corporate climate performance; affects portfolio monitoring and stewardship.

Enhanced by Data & Intelligence

Climatig provides portfolio-level physical risk screening — asset-by-asset hazard analysis across acute and chronic climate risks for lending, investment, and insurance portfolios. SD-KPI Standards identify the material ESG exposures by sector, enabling risk teams to focus on the indicators that genuinely affect creditworthiness and default probability.

Explore our data capabilities →