Sustainability is fundamentally a prudential risk issue. Climate change, nature loss, pollution, resource scarcity and social inequality can all affect credit quality, market valuations, operational resilience and reputation. For Chief Risk Officers, the challenge is therefore not to manage sustainability through a separate process, but to understand how these drivers transmit into familiar risk types and incorporate them into the bank’s existing risk management frameworks.
The newly launched A Chief Risk Officer’s Guide to the Principles for Responsible Banking provides a practical route for doing this, connecting the Principles for Responsible Banking with seven core elements of risk management: risk strategy, governance, risk appetite, risk taxonomy and scope, risk identification, measurement and materiality assessment, risk management actions, and risk monitoring and reporting.
Building on the UNEP FI Risk Centre’s Conceptual Framework for Sustainability Risk Integration, which defines the seven core elements for sustainability risk integration, and The Landscape of Sustainability Risk Integration, which sets out the evidence case for sustainability risk integration, these three resources give risk professionals a coherent path through the Responsible Banking Journey.
What does the Guide offer Chief Risk Officers?
The Guide translates responsible banking commitments into the language, responsibilities and processes of the risk function. In particular, it sets out how CROs can:
- Strengthen the business and financial basis for decision-making by bringing risk analysis to sustainability topics, determining which impacts and exposures are financially material and considering how they may evolve over time.
- Integrate sustainability into core risk management, including risk strategy, governance, risk appetite, risk taxonomy and scope, risk identification, measurement and monitoring, risk management actions, and reporting.
- Ensure resilience and accountability through controls, monitoring and assurance, supported by the data, data lineage and data governance needed for exposure monitoring, stress testing and credible disclosure.
- Cultivate a sustainability-aware risk culture, so that sustainability ambition and prudential soundness reinforce, rather than compete with, one another.
From principles to practical implementation
Rather than prescribing a single implementation model, the Guide sets out a progressive pathway that recognises banks are starting from different levels of maturity.
Throughout the Guide, CRO actions and practical questions are accompanied by examples from PRB signatory banks, including NatWest, Standard Bank, BBVA, The Norinchukin Bank, CIMB Group, CaixaBank, Westpac and Nordea. The examples demonstrate how sustainability considerations are already being incorporated into areas including underwriting, risk appetite, client transition assessment, financing conditions, onboarding and disclosure.
At its core, the Guide positions the risk function as an enabling partner in delivering the Principles for Responsible Banking: applying the same rigour to sustainability-related risk drivers that banks apply to other material exposures, while helping translate sustainability objectives into the language of risk, capital and resilience.
Explore A Chief Risk Officer’s Guide to the Principles for Responsible Banking report here.
If you’re interested in joining the members-only launch webinar on November 3rd, don’t hesitate to get in touch with Wendy Dobson and Oualid Rokneddine.