ESG risks
ESG risks in the areas of climate and environment are sub-divided into physical and transition risks. Physical risks arise from both extreme weather events and their consequences, as well as long-term changes in climatic and ecological conditions. Transition risks arise in relation to the conversion to a low-carbon economy.
ESG risks are not regarded as a standalone risk type, but rather as a driver of classic risk types at Rentenbank. ESG risk drivers relevant for Rentenbank were identified from a long list of potential ESG risk drivers. The identification of these ESG risk drivers was based on risk exposure, financial effects, and the potential transmission channel.
In its promotional activity, Rentenbank ensures the funding of local banks that grant its special promotional loans. The local bank bears the default risk of the ultimate borrower. Therefore, Rentenbank’s customers are nearly all classified as banks or German state institutions. The Bank does therefore not invest directly in agriculture and forestry.
Based on this classification, Rentenbank analyses the potential effects of sustainability risks. Individual ESG aspects are already taken into account within the existing credit rating procedures. Rentenbank has employed controversy screening as part of its credit assessment process since 2023. An ESG scoring procedure was introduced in 2024.
Various ESG scenarios focused on climate and environmental risks have been analysed and the potential effects of climate change on Rentenbank’s capital and risk situation have been examined since 2020. The ESG scenarios were developed on the basis of currently available information and assessments (including the “Network for Greening the Financial System”). Two scenarios that reflect Rentenbank’s physical and transition risk drivers as broadly as possible were selected. Quantitative estimates of the long-term effects of both scenarios were performed. As expected, the effects on Rentenbank’s risk indicators were found to be minor. The scenarios are continually refined on the basis of new insights, particularly those of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). In addition, the development of the CO2 price is monitored as a risk indicator.