European Bank for Reconstruction and Development

Climate risk, resilience and adaptation

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs

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Paris AlignmentReasoning
Paris alignedDedicated strategy and tools employed for climate risk management at project level. Climate strategy takes beyond-project approach to client resilience.
Project-level climate risk management proceduresScope of coverage of project-level climate risk managementEnhancing client climate resilience Adaptation  
finance 
EBRD has a specific strategy and screening tool processes in place, involving both risk screening and risk-proofing.EBRD screens all projects for climate vulnerability; a subset of these are offered funded climate risk assessments if deemed ‘climate sensitive’.There are clear efforts made to move clients towards climate resilience and beyond climate proofing.EBRD remains low in its levels of adaptation finance.

Explanation

The EBRD screens all its projects for climate vulnerability. There is also a focus on providing technical support for each project.

Projects are screened for climate vulnerability, if deemed to be ‘climate sensitive’. The EBRD offers donor funded climate risk assessments or feasibility studies. This involves an economic assessment of climate resilience opportunities, the priorities for investment, and development of a finance plan for priority investments.

The EBRD partners with the Global Centre of Excellence on Climate Adaptation (GCECA) to strengthen the resilience of the financial sector to climate impacts. One aim is to further develop climate risk metrics for investors. 

The EBRD recognises that climate risk analysis is not yet being completed systematically for all clients. Similarly, the Bank knows that it is not yet collecting sufficient data and information to be able to comprehensively disclose these risks in an aggregated form. In the coming years, the EBRD will also work towards implementing a more comprehensive climate-risk assessment framework.  

According the Bank’s stand-alone report on the steps it is taking to follow the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), this new framework is likely to involve two components:  

  • Project risk analysis – the Bank is in the process of introducing a consistent methodology to analyse (and score) physical climate risks and carbon transition risks for all EBRD clients.  
  • Portfolio analysis – the Bank is developing the capability to assess the impact of climate risk on its investments more systemically, including:
  1. risk measurement to enable appropriate risk mitigating actions
  2. dynamic climate-risk scenario and stress-test analysis; and
  3. reporting on how climate risks impact the portfolio. The Bank will monitor regulatory developments for the design of these stress tests, given that this type of analysis is in its infancy. 

Furthermore, the EBRD has recently begun to assist a number of clients with their own climate financial risk analysis and disclosure. These activities help enable the Bank to understand its exposure to climate financial risks and disseminate good practices on climate risk management among the EBRD’s clients and across the regions in which it operates.  

In 2020, the EBRD signed a US$ 100 million project to finance Louis Dreyfus Company’s (LDC) subsidiaries operating in Bulgaria, Egypt, Kazakhstan, Poland, Romania, Tajikistan, Turkey and Ukraine. The transaction will finance working capital needs for the trading activities of LDC’s subsidiaries in these countries. As part of the project, the EBRD will assist LDC in introducing enhanced practices for climate-related risk assessment and disclosure. This includes supporting the company in signing up as a TCFD supporter and in starting to analyse and disclose the climate financial risks to which the company is exposed in selected value chains, with significant demonstration effects in the agricultural commodities sector. 

The EBRD continues to lag in the share of their climate finance going to adaptation, which is under 15%. There seems to be no sign of change over the years.  

On Environment and Social Risk Management, the EBRD has developed a E&S Risk Management Toolkit. The Toolkit “is a user friendly way to help EBRD partner FIs to meet the requirements of the EBRD’s E&S Risk Management Procedures for Corporate Loans, SME Loans and Equity Investments”. The toolkit screens transactions for E&S risks as well as to assess the effectiveness and adequacy of their client’s E&S risk management systems. The Toolkit automatically generates an E&S due diligence report.  

In June 2016, a note entitled “Integrating Climate Change Information and Adaptation in Project Development: Emerging Experience from Practitioners” was prepared summarising the experience from European financing institutions and the European Commission regarding how climate issues can be best integrated into project development and implementation. The note helped practitioners assess climate change risks and vulnerabilities and integrate adaptation measures – structural or non-structural – into project planning, design and implementation.  

The overall aim is to help make projects and investments more resilient to the effects of climate change and to implement adaptation measures that reinforce the climate resilience of goods, people, economies and territories of the beneficiaries. 

The note is based on the emerging experience of experts from seven European institutions working together under the umbrella of the European Financing Institutions Working Group on Adaptation to Climate Change (EUFIWACC). 

The group comprises Agence Française de Développement (AFD), the Council of Europe Development Bank (CEB), the European Bank for Reconstruction and Development (EBRD), the European Commission’s Directorate-General for Climate Action (DG CLIMA), the European Investment Bank (EIB), KfW Development Bank (KFW), and the Nordic Investment Bank (NIB). 

The work is trying to develop new tools for decision-making under uncertainty and help build a track record of best practices and due diligence in this area. 

As part of the document, climate risks should be prioritised in a way that takes into account potential impacts and probabilities, including:  

  • Mapping of risks: where, how and why 
  • Characterisation of the risks: tangible, intangible  
  • Time-space value: where and/or when a given risk represents the highest threat 
  •  Economic evaluation: expected damages to the project 
  •  Decision matrix: determine risk management actions and priorities. 

Last Update: November 2020

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