ALP has successfully undertaken a complete implementation of an end-to-end climate risk solutions, encompassing development of ESG Scorecards, measuring financed emissions, climate risk stress testing, and complying with disclosure requirements
1. ESG Scorecard Development
Development of an ESG Scorecard for the Bank that:
- Contained an exhaustive list of scoring parameters across environmental (emissions, water use, etc.), social (worker management, employment generation, etc.), and governance (board independence, disclosures, etc.) factors
- For unlisted and SME borrowers, included a questionnaire for capturing data for the above parameters
- Was integrated with other risk management systems to take financed emissions, transition, and physical risk vulnerability, as inputs
2. Measuring and Disclosing Finance Emissions
- Computation of financed emissions using internationally recognised methodologies such as the Greenhouse Gas Protocol
- Establishing processes to estimate emissions data for unlisted companies / SMEs, sectorial emission data, industry benchmarks, or other proxy methods.
- Ensuring comprehensiveness by including all emissions (scope 1, scope 2, and 3)
- Building a software solution that automated the above, including a data quality assessment framework
3. Climate Risk Stress Testing
Developed software solutions for:
- The identification of climate risk factors at a borrower + portfolio level
- Climate risk stress testing, which
- Utilised scenarios provided by NGFS
- Measured the vulnerability to physical risk (flood, cyclone and drought), using latitude and longitude data
- Measured transition risk vulnerability
- Measured the impact of the stress tests on credit risk metrics (PD and LGD)
- Provided the ability to assess the above results at a portfolio, sectorial, and borrower level
4. Reporting
Building processes that ensured accurate reporting, both qualitative and quantitative, of ESG scorecards, financed emissions, and climate risk stress testing results, in accordance with the requirement of the Reserve Bank of India