ESG risks

ESG risks in the areas of climate and the environment are divided into physical risks and transition risks. Physical risks arise both in relation to individual extreme weather events and their consequences and with regard to long-term changes in climatic and ecological conditions. Transition risks arise in connection with the transition to a low-carbon economy.

At Rentenbank, ESG risks are not viewed as a separate risk type, but as risk drivers of the traditional risk types. Starting from a long list of possible ESG risk drivers, those relevant to Rentenbank were identified. In identifying these ESG risk drivers, vulnerability, financial impact and the possible transmission channel were taken into account.

As part of its promotional activities, Rentenbank provides refinancing for local banks in respect of its special promotional loans. In this context, the local bank bears the default risk of the ultimate borrower. Rentenbank’s customers are therefore classified almost exclusively as banks or domestic public-sector institutions. Accordingly, these are not direct investments in the agriculture and forestry sector.

Against the background of this classification, Rentenbank analyses the potential effects of sustainability risks. Within the existing credit assessment procedures, individual ESG aspects are already taken into account. Since 2023, Rentenbank has used controversy screening as part of credit assessment. In 2024, an ESG scoring system was introduced.

Since 2020, various ESG scenarios relating to future developments, with a focus on climate and environmental risks, have been considered, and the possible effects of climate change on Rentenbank’s capital and risk position have been examined. The ESG scenarios were developed largely on the basis of currently available information and assessments (including those of the Network for Greening the Financial System). The scenarios considered are intended to reflect Rentenbank’s physical and transition risk drivers as broadly as possible. For these scenarios, quantitative estimates of the short- and long-term effects were made, the impact of which on Rentenbank’s risk metrics is expected to be limited. The scenarios are continuously refined on the basis of new insights, in particular those provided by the NGFS. In addition, developments in the CO₂ price are monitored as a risk indicator.