Climate risk screening and assessment

Methodology

This section looked at the climate risk screening process of each bank, including both the coverage of this risk climate risk screening process across the portfolio, as well as the quality of this process.  

Coverage of Project Climate Risk Screening: This metric looked at which projects were screened for climate risk within the bank’s portfolio. All projects must be screened to be assessed as Paris-Aligned.   

Climate Risk Screening Tool Processes:  

There is no ‘one size fits all’ approach to climate risk screening within the banks. However, key things assessed were:  

• An initial screening process could be used to provide the foundation for an integrated climate risk management process that involved full climate risk assessments for vulnerable projects.   
• The monitoring and reporting of the efficacy of measures put in place to address climate vulnerabilities   
• An economic valuation of adaptation options available and the support of finance plans for priority investments.   
• Any capacity for retrospective screening of projects to understand whole portfolio climate risk.  

Identifying Opportunities and Integrating Resilient Policies:  

For the ‘Paris-Aligned’ ranking we tried to identify whether the institution was proactively supporting clients to identify adaptation opportunities and needs, rather than just screening projects in the existing project pipeline. The wide range of ways in which institutions identified adaptation opportunities and helped support local institutions made specific metrics difficult. We have defined ‘innovative’ to mean the use of an instrument in a new context rather than creation of new instruments.  

Adaptation Financing Progress: This looked primarily at the recent trend in adaptation financing and the progress made in scaling up adaptation financing.  The banks that scored poorly had seen no material improvement in the scale of adaptation finance, potentially an indication that adaptation needs and opportunities were not being proactively identified. E3G does recognise however that the level of adaptation financing in an institution is heavily dependent on how the definitions of adaptation finance are applied internally i.e. whether they are applied in a lenient or conservative manner. To be ‘Transformational’, as well as reaching the Paris-Aligned category, scenario stress-testing was being used for individual projects as well as for the whole portfolio, where information was available.  

This is an important part of operationalising the commitment made by the MDBs at COP24 to “be active in managing physical climate change risks, in a manner consistent with climate-resilient development, and in identifying opportunities to make our operations more climate-resilient […] in addition, we will seek to support a significant increase in our clients’ and their communities’ ability to adapt to the adverse impacts of climate change”. 

Evolution of this indicator:  

Due to time limitations, the quality of adaptation finance was not assessed. Further research would be required to assess the quality of the adaptation finance provided. Such an assessment would require developing an analytic approach for assessing the quality of adaptation finance.