Paper written by Clarissa Lins, Felipe Vignoli and Anna Carolina Barbosa, was based on Catavento's team practical experiences while implementing socio-environmental risks evaluation systems
The paper “Socio-environmental risk in the financial sector: A walk-through credit portfolio analysis and client evaluation” offers a step-by-step methodology to financial institutions aiming to implement socio-environmental risks evaluation systems in their credit portfolio.
Investors are increasingly interested in adopting sustainability in their investment strategies. As a result of this movement, financial institutions have a growing opportunity to implement, monitor and report their sustainability efforts. Particular policies have paved the way for financial institutions to adopt a more holistic approach to credit lending, and in particular to include socio-environmental risks in their lending portfolio.
Catavento has been working with clients from the financial sector to develop a methodology to capture these socio-environmental risks and opportunities, due to new regulatory demands by the Brazilian Central Bank (Banco Central) and Febraban (self-regulation). We rely on portfolio analyses and client evaluations to assess how fiancial institutions can improve their social and environmental efforts.
Our methodology can help financial institutions address these critical socio-environmental issues by offering a reliable and practical approach that is easily integrated into client lending practices. The methodology is innovative in some aspects, such as: the Federation States vision, allowing the institution to incorporate regional aspects (e.g. water stress); the definition of the material themes for the sectors with greater relevance to the financial institutions, following IFC’s approach and the Equator Principles; a socio-environmental vision of the institution’s portfolio, allowing it to have a proactive approach to mitigate its exposure to certain risks.
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