E1-9 – Anticipated financial effects from material physical and transition risks and potential climate-related opportunities

Classification and methodological framework

Rentenbank analyses the anticipated financial effects of climate-related physical and transition risks, as well as the potential of climate-related opportunities, as part of its integrated risk management. The analysis is aligned with the risk report, the risk strategy, the annual risk inventory and capital planning (ICAAP), and complements the disclosures in accordance with ESRS 2 SBM-3.

As a public promotional bank, Rentenbank grants its loans in accordance with the on-lending principle. Rentenbank’s contractual counterparties are therefore primarily the local banks and not the ultimate borrowers. ESG risks, including climate-related risks, have an indirect impact on Rentenbank through the economic situation and stability of the local banks. Direct project risks of the ultimate borrowers are generally borne by the local banks or ultimate borrowers.

The climate-related risk drivers identified as part of the risk inventory are classified as relevant but not material. The anticipated financial effects are assessed primarily by means of scenario-based analyses, which are regularly updated and integrated into organisation-wide management. Both the normative and the economic perspective are taken into account in these analyses.

Climate scenarios and time horizons

Two climate scenarios are used to assess climate-related risks and opportunities. For the medium to long-term perspective up to 2050, Rentenbank uses a reference scenario from the Network for Greening the Financial System (NGFS), which maps both physical and transition risks.

In addition, a short-term climate scenario, which is also based on NGFS pathways, is used as part of capital planning. This short-term scenario has been adapted for Rentenbank and takes into account the macroeconomic and financial effects of successive extreme weather events, as well as additional aid programmes and support measures provided by Rentenbank. It is used in particular to estimate short-term impacts on capital and risk ratios.

The NGFS macroeconomic pathways on which the scenario analyses are based are translated into internal risk and earnings metrics, in particular into parameters for assessing credit and market price risks, as well as key steering and capital ratios. The methodological implementation of this translation is documented in the internal risk and control processes.

The changes in the risk indicators observed in the scenario analyses represent model-based sensitivities. They show potential adverse effects under the respective assumptions but, based on the information currently available, do not have a material adverse effect on Rentenbank’s financial position, financial performance or capitalisation in the short, medium or long term.

Anticipated financial effects from physical climate risks

Physical climate risks affect Rentenbank indirectly through its credit portfolio. The focus is on acute risks arising from extreme weather events such as heavy rainfall, flooding or droughts, as well as chronic risks resulting from long-term climatic changes.

Based on the analyses performed with regard to the risk inventory, physical climate risk drivers are classified as relevant but not material for Rentenbank. Rentenbank does not hold any material property, plant and equipment of its own that are exposed to significant physical climate risks. The credit portfolio consists primarily of receivables from banks with good credit ratings. Accordingly, there are no material assets in the short, medium or long term whose carrying amount is subject to a significant acute or chronic physical climate risk.

For the purposes of the ESRS disclosures, no assets or sources of income were identified that are exposed to a material acute or chronic physical climate risk in the short, medium or long term. The monetary amount and the corresponding share of those assets are therefore zero in each case.

Accordingly, there are no assets to which climate change adaptation measures relate within the meaning of these disclosures. Furthermore, no significant locations or assets with a material physical climate risk were identified. The monetary amount and the share of net revenue from business activities associated with a material physical climate risk are likewise zero.

Anticipated financial effects from transition risks

Transition risks for Rentenbank arise in particular from regulatory developments, technological changes and the macroeconomic effects of the transformation process towards a climate-neutral economy. The scenario analyses carried out show that, in particular, disorderly or delayed transition pathways may lead to short-term pressure on macroeconomic indicators, for example through lower economic growth, changed rating assumptions or rising risk premiums.

However, these effects do not have a material financial impact on Rentenbank. The assumed rating changes, for example, lead only to limited changes in risk-weighted assets. Risk ratios increase only moderately. No additional liabilities relevant to the balance sheet are expected to arise from transition risks in the short, medium or long term.

As Rentenbank does not hold any material real estate portfolios of its own, a breakdown of carrying amounts by energy-efficiency class is not meaningfully applicable. No material adverse effects on net revenue are expected on the income side either.

For the purposes of the ESRS disclosures, no assets or sources of income were identified that are exposed to a material transition risk in the short, medium or long term. The monetary amount and the corresponding share of those assets are therefore zero in each case.

Accordingly, there are no assets to which climate change adaptation measures relate within the meaning of these disclosures. No additional liabilities were identified that would have to be recognised in the financial statements in the short, medium or long term as a result of significant transition risks. The monetary amount and the share of net revenue from business activities associated with a material transition risk are likewise zero.

Reconciliation with the annual financial statements

As physical and transition climate risks are not financially material, there are no material differences or reconciliation requirements between the assets, liabilities and net revenue analysed in this disclosure and the corresponding items or notes in the annual financial statements.

Potential of climate-related opportunities

In addition to potential risks, climate-related opportunities arise for Rentenbank from its public promotional mandate. These relate in particular to the expansion of renewable energy, investments in natural climate change mitigation and the promotion of low-emission and resilient production methods in the agricultural sector.