ALP has successfully developed an ESG Framework for OFFA, in addition to building physical risk stress testing capabilities for their real estate exposures
Digital Bank Development
1. ESG Framework Development
- Defining ESG objectives that were aligned with the strategic direction of OFFA
- Building an ESG Scorecard, aimed at assessing ESG performance at a mortgage level, that:
- Contained an exhaustive list of scoring parameters across environmental (energy efficiency, water use, waste management, etc.), social (community impact, affordable housing, etc.), and governance (board diversity, disclosures, etc.) factors
- For unlisted and SME borrowers, included a questionnaire for capturing data for the above parameters
- Defining ESG metrics (such as share of energy efficient properties, average CO2 emissions per square foot, mortgage allocation to affordable housing, etc.) and KPIs related to them
- Developing an ESG policy, that outlined OFFA’s commitment and defined practices that would enable the achievement of ESG objectives and the above KPIs
- Developing ESG Reporting Processes, also ensuring their compliance with regulatory standards
2. Physical Risk Vulnerability Assessment and Stress Testing
Developed software solutions for assessing and stressing physical risk vulnerability, including:
- Measured the vulnerability to physical risk (flood, cyclone and drought), using latitude and longitude data of the mortgages, within three scenarios ("Early Action," "Delayed Action," and "No Action.“)
- The scenarios also considered economic variables in the UK markets (using residential and commercial real estate price indices) and physical variables (including CMIP6 data)
- Collecting mortgage data and modelling for physical risks against floods, cyclones, and drought
- Adjusting LTV ratio projections based on the impact of PD and LGD