ICAAP ESG Scorecards and Pillar II: Quantitative and Qualitative

Problem Statement

Evaluation of Material Risk

The client needed to evaluate the level of Material Risk associated with climate-related Transition Risks and identify the expected loss (EL) risk tail at a 5.0% significance level, considering a delayed transition scenario.

Solution Approach

Robust PD Modeling

Solytics implemented a methodology to:

Identify the complete counterparty portfolio (CP) for 2023 (CP2023).
Select the 95th percentile of Expected Loss (EL) within CP2023 as a subset (SC2023).
Calculate the Probability of Default (PD) for each obligor using the "Delayed Transition" methodology outlined in the 2023 Climate Stress Testing from CBUAE.
Project PDs to the NetZero Pledge year (2040).

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Client Impact

Regulatory Compliance

Provided a comprehensive assessment of climate-related transition risks.
Enabled informed decision-making for risk management, including material climate risks.
Improved regulatory compliance and provided benchmarking and progress against Net Zero Pledge Year.