By Vanora Bennett
The EBRD has published its second annual report based on the voluntary reporting framework of the Task Force on Climate-Related Financial Disclosures (TCFD).
“We are pleased to be able to share with our stakeholders the progress we are making on shaping climate change-related financial disclosures,” said EBRD Vice-President, Risk and Compliance, Annemarie Straathof “and reaffirming our commitment to improving transparency and directing material investment to facilitate the journey to a carbon-neutral economy.”
The enhanced report includes details of the Bank’s assessment methodologies for both carbon-transition and physical climate risk and provides initial disclosures on the EBRD’s performance against agreed climate risk indicators and metrics. It further sets out key Bank targets for addressing the impact of climate change on the economies where it invests. These include aligning all of its activities and investments with the goals of the Paris Agreement by 2023 and ensuring that Green Economy Transition (GET) projects account for at least 50 per cent of all new Annual Bank Investment by 2025.
Other disclosure highlights include a first heatmap of the Bank’s portfolio, illustrating inherent physical and carbon-transition risk, as well as the summary results of two pilot scenario- and stress-testing exercises. One of the pilot exercises modelled Network for Greening the Financial System (NGFS) scenarios for the EBRD’s oil and gas portfolio (a sector widely regarded as high carbon-transition risk).
The results of the NGFS scenario analysis, while preliminary, were both revealing and reassuring. Applying the NGFS scenarios to a static balance sheet (unchanged for 30 years) showed significant risk, suggesting default on more than 60 per cent of the portfolio. A dynamic balance-sheet approach, however, that took into account scheduled debt repayments, produced a far milder impact, very much in line with the Bank’s current provisioning levels. The Bank is committed to further developing the scope of these scenario- and stress-testing methodologies and to integrating the outcomes into its risk-appetite and portfolio planning.
The TCFD reporting framework aims to raise the profile of financial risks associated with climate change and to provide investors with transparent information on the risks and opportunities involved. One objective is to create momentum behind a migration of finance that will enable the transition to a low-carbon future. Risk assessment and reporting is a rapidly developing area and one that faces various challenges, including a lack of comprehensive, standardised data and common methodologies.
As a leader in climate finance and the first multilateral development bank to sign up as a TCFD supporter in 2018, the EBRD is committed to working with its peers in the public and private sectors to influence regulators and assist in the design and implementation of best practices. The EBRD believes that its role and experience will facilitate and enhance its ability to continue working with clients on opportunities to promote the transition to low-carbon and climate-resilient economies.
The TCFD was created in 2015 to foster reporting on the impact of organisations on the global climate. It seeks to make firms’ climate-related disclosures more consistent and, therefore, more comparable.
The Network for Greening the Financial System is a coalition of central banks and supervisors sharing climate best practices.