Climate Change Management: Risks and Opportunities

АО «Отбасы банк» последовательно развивает Otbasy Bank JSC is consistently advancing the integration of climate-related risks into its overall risk management system, aligning with international standards including IFRS S2, as well as methodological guidance from the Agency for Regulation and Development of the Financial Market. The Bank’s approach is grounded in the recognition that climate factors can directly or indirectly amplify traditional categories of banking risks – ranging from credit to operational and strategic risks.

In 2024, with the support of international consultants, the Bank completed the development of its proprietary methodology for climate-related risk assessment. This included the classification of physical and transition risks, along with an initial diagnostic of the credit portfolio’s exposure through scenario analysis and stress testing. The assessment utilized geographic data, information on collateral, and property types, enabling the identification of zones within the mortgage portfolio that are most vulnerable to floods, abnormal temperatures, and other climate-related events.

Climate-related risk management is carried out within the existing risk management framework: identification, assessment, monitoring, and response. Physical risks – such as the potential damage to collateral from extreme weather events (floods and landslides) – are assessed alongside transition risks, including stricter energy efficiency regulations, increased demand for energy-efficient housing, and shifts in funding policies.

Based on this analysis, the Bank developed a climate-related risk matrix that classifies threats by impact level, source, and frequency. Priority risk categories were identified, with integration to be implemented in stages – starting with those posing the highest risk to financial stability. Climate factors will be incorporated into underwriting and monitoring processes and used in calculating expected losses under alternative climate change scenarios.

In parallel, the Bank is developing internal procedures to integrate climate-related considerations into risk appetite, the risk register, internal reporting, and key performance indicators (KPIs). Depending on the evolving regulatory landscape, the Bank is also considering a transition to regular climate stress testing, to be conducted across short-, medium-, and long-term horizons. This will help assess the resilience of the Bank’s capital and liquidity in the face of systemic climate shocks.

The Bank is building a comprehensive, data-driven, and strategically embedded climate-related risk management system, ensuring adaptability, transparency, and resilience amid escalating environmental and regulatory challenges.

Climate Change Management: Enhancing Corporate Governance and Strategy

Otbasy Bank JSC views climate-related risk management as a key component of its sustainable development strategy, which is implemented with the active involvement of its corporate governance bodies. In 2023, in order to institutionalize the ESG agenda, the Bank adopted a Sustainable Development Policy that establishes strategic principles for managing environmental impact, social responsibility, and climate adaptation. According to this policy, sustainable development is recognized as a core principle of corporate governance, encompassing not only strategic decision-making but also the daily operations of all employees and officials at every level.

The ESG agenda is managed within an integrated corporate governance framework. The Board of Directors oversees the implementation of the sustainable development strategy, including its climate-related components. The Management Board, in cooperation with relevant departments and specialized committees, is responsible for executing ESG initiatives, integrating them into operational processes, and ensuring compliance with internal regulatory standards and external reporting frameworks.

In 2024, the functions of the Risk Committee were expanded. In addition to its regular analysis of factors influencing the resilience of the Bank’s business model, the Committee now also supervises and preliminarily approves internal regulatory documents related to climate and ESG risks. The Committee reviews the results of climate-related risk assessments with respect to their impact on the Bank’s operations in the short-, medium-, and long-term. Climate-related risk management functions are coordinated by specialized departments under the oversight of the executive management level.

The Bank’s risk management system also incorporates reputational and ESG-related risks, which are acknowledged as critical in the context of sustainable development. These risks are managed through media monitoring, stakeholder feedback, ongoing consultations, and the evaluation of external and internal impact factors. The primary objectives are to minimize the Bank’s negative environmental impact, strengthen trust among customers and partners, and strengthen social sustainability.

The Bank’s internal documentation outlines procedures for the assessment and monitoring of ESG risks. These include the development and implementation of key risk indicators (KRIs) and key performance indicators (KPIs), procedures for managing reputational risk, and the evaluation of climate-related impacts. Looking ahead, the Bank plans to gradually integrate ESG principles into contractual relationships with suppliers and counterparties, with a focus on the sustainability and transparency of supply chains.

Special attention is given to fostering a corporate culture of sustainability, including regular employee training and the professional development of management in the areas of climate-related risk management and sustainable development. These measures ensure a holistic approach, support the formation of responsible business practices, and enable the Bank to effectively adapt to evolving regulatory and market expectations. The corporate governance system at Otbasy Bank JSC provides for the systematic and comprehensive integration of climate and ESG risks into both strategic and operational management, enhancing the sustainability of the business model and laying the foundation for long-term development in line with international and national standards.