Climate change is becoming one of the defining factors of the strategic transformation of the financial sector in the Central Asian region and in the Republic of Kazakhstan. Rising temperatures and the increasing frequency of extreme weather events create significant risks both for macroeconomic stability and for the sustainability of individual business models. The Republic of Kazakhstan, as part of the global climate space, is already facing a number of challenges: an increase in the frequency of droughts and floods, fluctuations in water resources, as well as the growing impact of climate factors on urban and housing infrastructure.

Under these conditions, Otbasy Bank, acting as a key institution in the field of housing financing, realizes the importance of timely adaptation to climate change. Simultaneously, pressure is increasing from investors, international partners, and clients who expect transparency, responsibility, and the ability to integrate climate aspects into the development strategy from financial institutions and national regulators.

Since 2024, the Bank has implemented a comprehensive approach to integrating the climate agenda into strategic and operational processes. In 2024, systematic work was conducted on the development and implementation of an internal methodology for assessing climate risks, including:

-          a procedure was developed and implemented for conducting climate stress testing and scenario analysis of the impact of climate factors on the mortgage portfolio of the Bank;

-          a classification of physical and transition risks was formed, taking into account the regional specifics of the country and the portfolio structure.

The implemented initiatives are based on international approaches, including the recommendations of the Bank for International Settlements (BIS), the European Central Bank, the sustainable reporting standards GRI and SASB, as well as the requirements of IFRS S2 – the global standard for climate risk disclosure.

The vector of the Bank's ESG transformation corresponds to the strategic priorities of the Republic of Kazakhstan aimed at achieving carbon neutrality by 2060.

For the Bank, the climate agenda goes beyond regulatory compliance and is viewed as a key component of long-term sustainability, competitiveness, and social responsibility. Climate risk management is becoming an integral part of the Bank's mission — to ensure sustainable access of the population to quality housing, taking into account the climate challenges faced by the regions of Kazakhstan in which the Bank conducts its activities.

Management of Climate Change, Risks, and Opportunities

The Bank consistently develops the integration of climate risks into the overall risk management system, focusing on international standards, including IFRS S2, as well as the methodological guidelines of the Agency for Regulation and Development of the Financial Market. The understanding that climate factors can directly or indirectly amplify traditional categories of banking risks — from credit to operational and strategic — formed the basis of the Bank's systematic approach to managing these risks.

Jointly with international consultants, the Bank developed its own methodology for assessing climate risks, including a classification of physical and transition risks. Within the framework of the methodology, an initial diagnosis of the credit portfolio's exposure was conducted using geographical data, data on collateral, and property types, which allowed for identifying the zones of the mortgage portfolio's greatest vulnerability to floods, temperature anomalies, and other climate phenomena. Stress tests and scenario analysis of the impact of climate factors on the portfolio have been implemented into the Bank's regular risk assessment practice.

Climate risk management is carried out within the framework of the existing risk process: identification, assessment, monitoring, and response. Physical risks — such as the probability of damage to collateral property from extreme weather conditions (floods and landslides) — are assessed along with transition risks associated with the tightening of energy efficiency standards, growing demand for energy-efficient housing, and changes in funding policies.

In the reporting year, the Bank developed and implemented internal procedures for including climate factors into the risk appetite, Risk Register, and reporting, and also approved key performance indicators (KPIs). Climate risks are integrated into the risk assessment and management processes; the Sustainable Development Strategy establishes key performance indicators in the field of climate impact management and greenhouse gas emissions reduction. In addition, the Bank implemented the practice of climate stress testing and scenario analysis to assess capital and liquidity resilience to systemic climate shocks over short, medium, and long-term horizons.

The Bank forms a comprehensive, quantitatively substantiated, and strategically embedded mechanism for managing climate risks, ensuring adaptability, transparency, and reliability under conditions of intensifying environmental and regulatory challenges.

 

Climate Change Management – Corporate Governance Improvement and Strategy

Otbasy Bank considers climate risk management as an important part of its sustainability strategy, which is implemented with the participation of corporate governance bodies. In 2023, in order to institutionalize the ESG agenda, the Sustainability Policy was approved, establishing the strategic principles for managing environmental impact, social responsibility and climate adaptation issues. In accordance with this policy, sustainable development is recognized as a fundamental principle of corporate governance, encompassing not only strategic decisions, but also the daily activities of all employees and officers at all levels.

Management of the ESG agenda is carried out within the framework of an integrated corporate governance structure. The Board of Directors provides oversight over the implementation of the sustainability strategy, including the climate component. The Management Board, jointly with core departments and specialized committees, is responsible for the execution of ESG initiatives, their integration into operational processes, as well as for compliance with relevant standards at the level of internal regulation and external reporting.

The Risk Committee, in addition to regular analysis of factors influencing the sustainability of the business model, exercises control and preliminary approval of internal regulatory documents relating to climate and ESG risks. The Committee reviews the results of the assessment of the impact of climate risks on the Bank's activities in the short, medium and long term. Coordination of climate risk management functions is carried out by core departments under the supervision of the executive level.

The Bank's risk management system also includes reputational, ESG and climate risks, which are recognized as key in the context of sustainable development. Management of these risks is carried out based on media monitoring, feedback from stakeholders, regular consultations, as well as assessment of external and internal impact factors, including physical and transition climate risks. The main objective is to minimize the negative impact of the Bank's activities on the environment, increase trust from clients and partners, ensure the sustainability of the business model and strengthen social stability.

Internal documents of the Bank define the procedure for assessing and monitoring ESG and climate risks, including the development and implementation of key risk indicators (KRI) and key performance indicators (KPI), reputational risk management procedures, as well as the assessment of physical and transition climate factors. In the future, a phased integration of ESG principles into contractual relationships with suppliers and counterparties will be considered, with an emphasis on the sustainability and transparency of supply chains.

Special attention is paid to the development of a corporate culture of sustainability, including regular training of employees and professional development of management in the field of climate risk management and sustainable development. These measures ensure the integrity of the approach, contribute to the formation of responsible business practices and allow the Bank to effectively adapt to growing regulatory and market expectations. The corporate governance system of the Bank ensures the systemic and comprehensive integration of ESG and climate risks into strategic and operational management, strengthening the sustainability of the business model and creating a foundation for long-term development in accordance with international and national standards.