ifrs-s2-ibg-volume-16-commercial-banks-part-b

Title: Volume 16—Commercial Banks

Category: Part B—Industry-based Guidance for IFRS S2

Source: IFRS Foundation (https://www.ifrs.org)

Navigator: https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/sustainability-pdf-collection/

Model: https://www.ifrs.org/content/ifrs/home/issued-standards/ifrs-sustainability-standards-navigator/sustainability-pdf-collection/jcr:content/root/responsivegrid_1242322373/standarddocument.model.json

PDF: https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards-issb/english/2023/issued/part-b/ifrs-s2-ibg-volume-16-commercial-banks-part-b.pdf?bypass=on

Year: 2023

Type: Industry

Industry-based Guidance on implementing

Climate-related Disclosures

Volume 16—Commercial Banks

June 2023

IFRS S2

IFRS

® Sustainability Disclosure Standard

International Sustainability Standards Board

This Industry-based Guidance accompanies IFRS S2 Climate related Disclosures (published

June 2023; see separate booklet) and is issued by the International Sustainability

Standards Board (ISSB).

Disclaimer: To the extent permitted by applicable law, the ISSB and the IFRS Foundation

(Foundation) expressly disclaim all liability howsoever arising from this publication or

any translation thereof whether in contract, tort or otherwise to any person in respect of

any claims or losses of any nature including direct, indirect, incidental or consequential

loss, punitive damages, penalties or costs.

Information contained in this publication does not constitute advice and should not be

substituted for the services of an appropriately qualified professional.

Reproduction and use rights are strictly limited to personal non-commercial use, such as

corporate disclosure.

Any other use, such as – but not limited to – reporting software, investment analysis,

data services and product development is not permitted without written consent. Please

contact the Foundation for further details at sustainability_licensing@ifrs.org.

The Foundation has trade marks registered around the world (Marks) including ‘IAS®’,

‘IASB®’, the IASB® logo, ‘IFRIC®’, ‘IFRS®’, the IFRS® logo, ‘IFRS for SMEs®’, the IFRS for SMEs®

logo,

‘International

Accounting

Standards®’,

‘International

Financial

Reporting

Standards®’, the ‘Hexagon Device’, ‘NIIF®’, ‘SIC®’ and SASB®. Further details of the

Foundation’s Marks are available from the Foundation on request.

The Foundation is a not-for-profit corporation under the General Corporation Law of the

State of Delaware, USA and operates in England and Wales as an overseas company

(Company number: FC023235) with its principal office in the Columbus Building, 7

Westferry Circus, Canary Wharf, London, E14 4HD.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

Introduction

This volume is part of the Industry-based Guidance on Implementing IFRS S2 Climate-related

Disclosures. This guidance suggests possible ways to apply some of the disclosure requirements in

IFRS S2 but does not create additional requirements.

This volume suggests possible ways to identify, measure and disclose information about

climate-related risks and opportunities that are associated with particular business

models, economic activities and other common features that characterise participation in

this industry.

This industry-based guidance has been derived from Sustainability Accounting Standards

Board (SASB) Standards, which are maintained by the International Sustainability

Standards Board (ISSB). The metric codes used in SASB Standards have been included for

ease of reference. For additional context regarding the industry-based guidance contained

in this volume, including structure and terminology, application and illustrative

examples, refer to Section III of the Accompanying Guidance to IFRS S2.

IFRS S2 INDUSTRY-BASED GUIDANCE

Volume 16—Commercial Banks

Industry Description

Commercial banks accept deposits and make loans to individuals and corporations, and

engage in lending to infrastructure, real estate and other projects. By providing these

services, the industry serves an essential role in the functioning of global economies and

in facilitating the transfer of financial resources to their most productive capacity. The

industry is driven by the volume of deposits, quality of loans made, the economic

environment and interest rates. The risk from mismatched assets and liabilities further

characterises the industry. The regulatory environment governing the commercial

banking industry witnessed significant changes in the wake of the 2008 global financial

crisis and continues to evolve today. These and other regulatory trends may affect

performance. Commercial banks with global operations must manage new regulations in

many jurisdictions that are creating regulatory uncertainty, particularly regarding the

consistent application of new rules.

Note: This standard addresses ‘pure play’ commercial banking services, which may not

include all the activities of integrated financial institutions, such as investment banking

and brokerage services, mortgage finance, consumer finance, asset management and

custody services, and insurance. Separate standards address the sustainability issues for

activities in those industries.

Sustainability Disclosure Topics & Metrics

Table 1. Sustainability Disclosure Topics & Metrics

TOPIC

METRIC

CATEGORY

UNIT OF

MEASURE

CODE

(1) Number and (2) value of checking and savings

accounts by segment: (a) personal and (b) small business Quantitative Number,Presentation

accounts by segment: (a) personal and (b) small business Quantitative Number,Presentation currency FN-CB-000.A

(1) Number and (2) value of loans by segment: (a) personal, (b) small business, and (c) corporate 18 Quantitative Number,Presentation currency FN-CB-000.B 18 Note to FN-CB-000.B – Mortgage loans as well as revolving credit loans shall be excluded from the scope of disclosure.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023© IFRS Foundation 3

Incorporation of Environmental, Social, and Governance Factors in Credit Analysis Topic Summary As financial intermediaries, commercial banks contribute to significant positive and negative environmental and social externalities through their lending practices.

Environmental, social and governance (ESG) factors can have material implications for the underlying entities, assets and projects to which commercial banks lend across a

the underlying entities, assets and projects to which commercial banks lend across a range of industries. Therefore, entities increasingly must examine ESG factors when determining the quality of collateral. Commercial banks also may enable positive environmental and social externalities to generate significant revenue streams through their lending practices. Commercial banks that fail to address these risks and opportunities could face diminished returns and reduced value for shareholders.

opportunities could face diminished returns and reduced value for shareholders.

Commercial banks should subsequently disclose how ESG factors are integrated into lending processes and the current level of portfolio risk associated with specific sustainability trends. Specifically, investor and regulatory pressure is mounting for banks to disclose how they address climate change related risks.

Metrics FN-CB-410a.2. Description of approach to incorporation of environmental, social

Metrics FN-CB-410a.2. Description of approach to incorporation of environmental, social and governance (ESG) factors in credit analysis 1 The entity shall describe its approach to the incorporation of environmental,

social and governance (ESG) factors in its credit analysis.

1.1

The definition of incorporation of ESG factors is aligned with that of the Global Sustainable Investment Alliance (GSIA) and includes the use of ESG information in the investment decision-making processes.

1.2

information in the investment decision-making processes.

1.2

Examples of ESG factors and issues are provided in the PRI Reporting Framework—Main definitions 2018, section 'ESG issues'.

1.3

Credit analysis is defined as a method to calculate the creditworthiness of a business or organisation to honour debt obligations. This method seeks to identify the appropriate level of default risk associated with financing such business, organisation or project.

such business, organisation or project.

2 The scope of disclosure shall include commercial and industrial lending as well as project finance.

3 The entity shall describe the policies that determine its approach to the incorporation of ESG factors in its credit analysis.

4 The entity shall discuss how it incorporates ESG factors when estimating credit losses over the contractual term of the entity’s financial assets.

losses over the contractual term of the entity’s financial assets.

5 The entity shall describe its approach to implementation of the aspects of the entity’s ESG incorporation practices.

5.1

The description shall include:

5.1.1

Parties responsible for the day-to-day incorporation of ESG factors

5.1.2

5.1.3

Approach to ESG-related research

5.1.4

Approach to incorporating

ESG

factors into assessing creditworthiness of borrowers 6 The entity shall describe its oversight and accountability approach to the incorporation of ESG factors.

6.1

The description shall include:

6.1.1

Formal oversight individuals or bodies involved

6.1.2

Roles and responsibilities of employees involved

6.1.3

Criteria used in assessing the quality of ESG incorporation 7

6.1.3

Criteria used in assessing the quality of ESG incorporation 7 The entity shall discuss whether it conducts scenario analysis or modelling in which the risk profile of future ESG trends is calculated at the portfolio level of commercial and industrial credit exposure.

7.1

ESG trends may include climate change, natural resource constraints,

human capital risks and opportunities, and cybersecurity risks.

8 The entity shall discuss ESG trends it considers apply broadly in terms of their

8 The entity shall discuss ESG trends it considers apply broadly in terms of their effect on sectors and industries, as well as the trends it deems as sector- or industry-specific.

8.1

The entity may further provide the discussion in the context of geographical exposure of its commercial and industrial credit portfolio.

9 The entity shall describe significant concentrations of credit exposure to ESG factors, which may include carbon-related assets, water-stressed regions and

factors, which may include carbon-related assets, water-stressed regions and cybersecurity risks.

10 The entity shall describe how ESG factors are incorporated in the assessment of and influence the entity’s views on:

10.1

Traditional macroeconomic factors such as the economic conditions,

central bank monetary policy, industry trends, and geopolitical risks that affect creditworthiness of borrowers

10.2

Traditional microeconomic factors such as supply and demand for

10.2

Traditional microeconomic factors such as supply and demand for products or services that affect financial conditions and operational results of borrowers as well as their creditworthiness

10.3

Overall creditworthiness of a borrower

10.4

Maturity or tenor of a loan

10.5

Expected loss, including probability of default, exposure at default and loss given default

10.6

Value of posted collateral 11 The entity may disclose additional quantitative measures related to its approach

11 The entity may disclose additional quantitative measures related to its approach to the incorporation of ESG factors in credit analysis, such as:

11.1

Number of commercial and industrial loans and project finance screened according to the Equator Principles (EP III) (or equivalent) by EP Category IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023© IFRS Foundation 5

11.2

Number of loans for which a review of environmental or social risks was performed, for example, by the entity’s Environmental and Social Risk Management (ESRM) group IFRS S2 INDUSTRY-BASED GUIDANCE 6© IFRS Foundation

© IFRS Foundation 7 Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD, UK Tel+44 (0) 20 7246 6410 Email sustainability_licensing@ifrs.org ifrs.org International Financial Reporting Standards®, IFRS Foundation®,

IFRS®, IAS®, IFRIC®, SIC®, IASB®, ISSBTM, IFRS for SMEs®