ICICI

Home> Corporate Governance> Climate Risk Management Framework

Climate Risk Management Framework

ICICI Bank’s approach to analysing climate risks include developing methods to integrate climate risk in the risk management framework and test the resilience of the lending portfolio to physical and transition risks arising from climate change. The Bank has formulated an approach to address risks emanating from climate change, as part of its Climate Risk Management Framework.

As climate risk management is at a nascent stage in the Indian banking industry and regulations in this regard are being formulated, the Bank will ensure that gradually the approaches evolve and get refined for integration of climate risk management within the risk management framework.

The Bank is cognisant of transition from fossil fuel-based energy to renewable sources, and will capitalise on business opportunities in this transition based on selection of counterparty and appropriate risk-return in accordance with the Enterprise Risk Management framework.

The Bank has emphasised the need to sharpening the focus on measuring its carbon footprint. During fiscal 2023, pilots for evaluating Scope 3 emissions in own operations were taken up in the areas of purchased goods and services, business travel, employee commute and financed emissions. The approach and objective of the pilot projects are to assess and understand the key data and information requirements for calculating carbon and GHG emissions in accordance with established protocols.

Key Focus Areas for Addressing Climate Risks

Own Operations

Identified areas to reduce Scope 1 and Scope 2 emissions
In process to evaluate Scope 3 emissions
Identifying elements to achieve carbon neutrality in own operations

Sustainable Financing

Framework for Sustainable Financing, for sharper focus in the Bank's sustainable lending practices
Extending Bank's expertise to customers that are transitioning to decarbonise their business activities

Risk Management

Risks from climate change added in the Bank's Climate Risk Management Framework
The Bank participates in pilots conducted by regulator(s) to evaluate impact of climate-related financial risks on the Indian banking sector

To facilitate the above initiatives in the Bank, developing proficiency in understanding ESG-related risks and opportunities, aspects of ESG/climate-related risks has been embedded into the training imparted to a core team within the risk management group and other critical functions.

The Bank is committed to adapting to emerging trends that will shape the nation's transition to a low carbon economy, with appropriate assessment of risks and opportunities in delivering on the objectives.

Social and Environmental Management Framework

The consideration of ESG in the Bank’s lending decisions and risk management framework are important factors and various approaches have been implemented.

The Social and Environmental Management Framework (SEMF) requires analysis of specific environmental and social risks as part of the overall credit appraisal process for assessing new project financing proposals. Key elements of the assessment include screening through an exclusion list drawn broadly from the lists published by the International Finance Corporation (IFC) and list of highly polluting sectors published by the Ministry of Environment, Forests & Climate Change (MOEFCC) in India, seeking a declaration from borrowers and independent due diligence as per the criteria defined in the SEMF.

Key Elements of Assessment in Social and Environmental Management Framework (SEMF)

Screening

Screening through an exclusion list

Declaration of Compliance

Declaration of compliance with national environmental guidelines from qualifying borrowers as per SEMF

Independent Due Diligence

Due diligence by Lender’s Independent Engineer for large ticket project loans as per SEMF

Further, as part of the credit evaluation process for all large corporate lending proposals, borrower ESG scores from external agencies, if available, are considered.

The Bank has developed sector-specific checklists to facilitate assessment of ESG and climate-related physical and transition risks that a borrower in sectors like power, transportation, cement, steel and others could be exposed to.

This helps the Bank in profiling borrowers as ‘High’, ‘Medium’ and ‘Low’, based on their ESG-related risks and maturity in terms of policies and processes deployed to address these risks. SEBI’s requirement for the top 1,000 listed companies in India to make suitable disclosures under the Business Responsibility & Sustainability Reporting Format (BRSR) from fiscal 2023 is likely to facilitate better assessment through granular information and data on ESG parameters.

The Bank performs climate risk scenario analysis to quantify climate-related financial risks and assess the potential impact on key financial indicators such as capital and provisions. Climate scenario analysis is performed to understand the potential impact of physical risks on large corporates and certain retail and agriculture lending portfolios and for transition risks on the top corporate exposures in the portfolio at March 31, 2023. As a result of this exercise, the Bank identifies exposures that are prone to high probability of physical & transition risks and grades the exposure of borrowers for vulnerability with regards to climate action. The output of the exercise has been incorporated in the Bank’s financial planning as part of the ICAAP.

Suppliers Code of Conduct & Green Procurement Framework

To strengthen engagement of the Bank’s Infrastructure Management and Services Group (IMSG) with its vendors on ESG and sustainability, a Suppliers' Code of Conduct (Suppliers Code) has been developed. The Suppliers Code encourages vendors to adopt sustainable practices like efficient use of energy and water, waste management, and embed good practices like occupational health and safety, human rights and others in their operations.

In addition to creating awareness within IMSG and training the relevant team members, the Bank engaged with the vendors of IMSG during fiscal 2023 to familiarise them with the Bank's approach on adoption of sustainable practices and to communicate the Bank’s intent to evaluate them on environmental and social factors.

The IMSG has also established a Green Procurement Framework that articulates the Bank’s focus on minimising its environmental footprint and aims to purchase products that are sustainable and environment-friendly.