Basel's "Principles for the effective management and supervision of climate-related financial risks" puts forward expectations that banks should integrate transition and physical risks into traditional credit indicators such as probability of default (PD), loss given default (LGD), and exposure at default (EAD). Despite this, research conducted by IMF shows that credit risk modelling conducted by financial institutions are not yet fully pricing in climate risk. Finance professionals working in credit and loans are increasingly needing to understand how to systematically integrate these newer risks in their models, as well as how to source and adjust related data, to help their organisations better manage credit risks.
This course, delivered in partnership with WeESG, explores the advanced concepts of climate-related credit risks and how to address the current limitations associated data availability. Participants will gain a deep understanding of the related risk transmission channels and best practices to effectively integrate these in key credit indicators. This course will leave participants with the skills needed to enhance financial models by capturing climate risk while at the same time meet the expectations set forth by financial supervisors.
Two half-days (taught material + exercises, case study analysis & Q&A section)
Explore the mechanisms through which physical, transition and liability climate risks impact corporate finances and credit risk metrics including probability of default (PD), loss given default (LGD), and exposure at default (EAD).
Understand the key steps and challenges of incorporating climate risk in credit risk modelling.
Analyse the implication of key regulatory advancements around integrating climate in risk models for financial institutions.
Gain knowledge on the best practices on credit risk scorecards, data treatment and pre-empting the new challenges to come around reporting
Day ONE: 3 November (half-day) 13.30 GMT – 17.00 GMT / 08.30 EST – 12.00 EST
Advanced Principles of Integrating Climate in Credit Risk Modelling
- What are the transmission channels of physical, transition, and litigation climate-related risks?
- How does climate risk impact credit, market, liquidity and operational risks?
- What are the key levers to mitigate climate risk exposure for the financial institution?
- Exercise: How to quantify the impact of transition risk on a company's bottom line?
How Climate Risk Impacts Credit Risk
- How to quantify climate-related financial risks?
- How do the key bank-level methodologies compare?
- Discussion: How to identify what methodology works best for your organisation?
Approaches to Estimate Risk – Part I
- What are the key approaches to mapping bank-level scores and ratings?
- How to conduct forward-looking methodologies?
- How does Integrated Assessment Models (IAMs) and Agent-Based Models (ABMs) compare and when to use them?
- Discussion: What are the key data challenges to integrate climate in each of these models?
Day TWO: 10 November (half-day) 13.30 GMT – 17.00 GMT / 08.30 EST – 12.00 EST
Approaches to Estimate Risk – Part II
- When and how to conduct climate stress tests and sensitivity analysis?
- What are the strengths and shortcomings of key climate scenarios, including NGFS and IEA?
- How to estimate sectoral exposures to transition and physical risks?
- Discussion: What are the implications of recent regulatory stress tests to the industry and different type of financial institutions?
Integrating Climate Risk into Credit Risk Modelling
- How to incorporate climate risk throughout the credit risk lifecycle?
- Deep dive on integrating climate risk in: materiality assessment, strategic targets and risk appetite, risk management tools and transition finance product offering
- How are loan pricing and FTP impacted by the integration of climate risk?
- Discussion: What resources to address key challenges in integrating climate risk?
Best Practices in Risk Management
- What are the best practices according to the Basel Committee on Banking Supervision (BCBS)?
- How to set strategic targets and risk appetite?
- What are the key risk management tools and how do they compare?
- Discussion: How has water shortage in East Asia impacted the credit risk of a corporate loan book?
Zsuzsanna has 15 years of experience in the banking sector, having worked at Raiffeisen, OTP, and KBC.
She specializes in credit risk, sustainable finance, ESG, and climate risk. She has practical experience in integrating ESG assessments into loan origination, conducting climate stress testing and scenario analysis, measuring ESG risks, setting climate transition targets, and reporting in alignment with TCFD guidelines.
Currently, Zsuzsanna works as a Senior Manager Advisor on climate/ESG and credit risk, regulatory and financial risk management for a Big4 consultancy.