BAKU, Azerbaijan, May 14. The ESI
(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 ESI Risk Radar tool in the banking sector.


"This tool allows for the measurement and comparison of ESI
risks in situations where information at the loan and client level
is limited. The ESI Risk Radar is a tool that provides a complete
overview of ESI 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 ESI Risk Radar assesses three main
categories: Physical climate risk, Transition climate risk, and
other ESI 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 ESI risks in the bank’s loan
portfolio.


After identification of the ESI 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 ESI 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 ESI 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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