BAKU, Azerbaijan, May 14. The ESG (Environmental, Social, and Governance) Risk Radar is expected to be implemented in Azerbaijan by the end of 2026, the sustainable financial report of the Central Bank of Azerbaijan (CBA) says, Trend reports.
The report noted that the CBA, together with the Azerbaijan Banks Association and the German Sparkassenstiftung for International Cooperation, is implementing a project to implement the ESG Risk Radar tool in the banking sector.
"This tool allows for the measurement and comparison of ESG risks in situations where information at the loan and client level is limited. The ESG Risk Radar is a tool that provides a complete overview of ESG risks in a loan portfolio through heat map analysis, in line with the Bank for International Settlements (BIS) 'Principles for effective management and control of climate-related financial risks' 9 and the 'Core principles for effective banking supervision' 10, by applying a systematic 'top-down' assessment methodology.
At the sector level, the ESG Risk Radar assesses three main categories: Physical climate risk, Transition climate risk, and other ESG risks. With the identified sector scores, it's possible to form a heat map that provides an overview of the concentrations of climate-related and other ESG risks in the bank’s loan portfolio.
After identification of the ESG risk scores at the sector level, banks send their clients risk questionnaire templates prepared by experts. Based on the information provided by the clients, a separate ESG risk score is calculated for each company. Thanks to this approach, risks are systematically assessed at both the sector level and the company level.
As a result, banks can effectively use these scores in credit policies, portfolio management, and the overall risk control process. The ESG Risk Radar is expected to be implemented by the end of 2026," the report pointed out.
The report also noted that the CBA is taking measures to reduce the information gap within the framework of the "Roadmap for closing data gaps on transition risks arising from climate risks".
"For this purpose, it's planned to collect GHG emission data from enterprises during loan applications and reflect them in a structured manner in the Centralized Credit Registry, as well as expand the financial database for stress tests and scenario analyses. In addition, work is underway on a more detailed classification of emission data at the sub-sector level," added the report.
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