ESG in Risk Management for Banks: Regulatory Expectations and Best Practices


Course Overview

In October 2022, the Financial Stability Board (FSB) published a system-wide approach for the supervision of climate-related risks, drawing heavily on elements from existing prudential frameworks. Consequently, banks globally must now enhance their risk frameworks and processes to better identify, manage, mitigate, and report on their ESG-related risk exposures. Various roles across banking, from sales, through to loan officers, and risk departments, now require a solid understanding of the financial materiality associated with ESG and climate, emerging related prudential regulation, and the new requirements they face to meet their role in managing risk.

This course, delivered in partnership with WeESG, explores in depth how ESG and climate issues drive risk management across the banking sector. It clarifies how ESG risks can be integrated into a bank's traditional risk frameworks, and what the emerging expectations of regulators are, including the UK's Prudential Regulation Authority (PRA), the European Central Bank (ECB), the USA Federal Reserve Board, and the Monetary Authority of Singapore. It also identifies how leading banks are adapting to better identify, monitor, and mitigate ESG risks and challenges.

Duration: Two half-days (taught material + exercises, case study analysis & Q&A section)

Learning outcomes

Gain confidence conducting materiality assessments of ESG risks and understanding how credit risk is increasingly impacted by the 'physical', 'transition' and 'liability' risks associated with climate change.

Understand how to compare different approaches to integrating climate prudential regulation across a bank's activities.

Explore ways to integrate sustainability risks across bank-level risk frameworks using a variety of key data sources.

Learn how to integrate ESG risk exposure across a banks various reporting and disclosure requirements.

Course Outline

DAY ONE: 21 November (half day) 13.30 GMT – 17.00 GMT / 08.30 EST – 12.00 EST

Exploring ESG in Risk Management

  • How is ESG financially material to banks and their clients?
  • What are the emerging ESG risks and the challenges in assessing them?
  • When and how to utilize key risk frameworks and data sources?
  • Exercise: How to identify financially material ESG issues and indicators at a sector level

Assessing Climate Risk

  • What is the latest on climate risk and its impacts in different regions and sectors?
  • What are the key 'physical risk' transmission channels and how these impact counterparties?
  • What are key transmission channels of 'transition risk' and how these impact counterparties?
  • Exercise: How to quantify climate risk impacts on a company due to emerging carbon-related regulation

DAY TWO: 22 November (half day) 13.30 GMT – 17.00 GMT / 08.30 EST – 12.00 EST

Navigating Emerging Prudential Principles and Guidelines

  • Why the Basel's "Principles for effective management and supervision of climate-related financial risks" matter, and how different regulators have interpreted them?
  • How do guidelines on loan origination and monitoring impact credit analysis?
  • To what extent are regulators integrating climate risk in capital requirements?
  • Discussion: The impact of climate stress testing on future capital requirements

Best Practice in ESG Reporting and Disclosure

  • What are the latest developments on mandatory (Pillar 3) disclosures of ESG risks?
  • Where to source and adjust quantitative and qualitative data for ESG monitoring and reporting?
  • What are best practices around green asset ratio and portfolio alignment?
  • Discussion: How to anticipate the challenges ahead in data collection

Trainer: Nick Villiers

Nick is a sustainable finance expert with 18 years' investment banking experience.

Most recently, he led the Centre for Sustainable Finance at the University of Cambridge Institute for Sustainability Leadership (CISL). Working across banking, insurance, and investors to address knowledge gaps and develop tools and frameworks to drive change across finance. Specifically, he steered the Banking Environment Initiative, supporting bank clients on climate.

Prior to CISL, Nick worked in capital markets at Credit Suisse as Head of UK Debt Capital Market and Dresdner Kleinwort Wasserstein.

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