As a financial institution, AFD Group must be capable of assessing climate - financial risks that could affect the repayment capacity of its customers, from governments and local authorities to public or private companies and banks. Climate change is also a central focus of AFD’s governance, its dialogue with customers and partners, its choice of operations to be financed and the indicators used to monitor its activities.
The TCFD report by AFD Group documents, among other things, the internal approach implemented in 2015 to characterize the potential level of functional and/or structural risk faced by each project with regard to the anticipated effects of climate change. It also focuses on climate strategy, and maps the exposure of AFD Group’s portfolio to physical climate risks conducted in 2018.
Physical and transition risks
The publication of this report follows on from the work carried out in 2016 and 2017 by the Task Force on Climate-Related Financial Disclosure (TCFD), an international working group aimed at improving the financial transparency of companies and financial institutions for better internal evaluation of climate-related financial risks.
The TCFD has defined two broad categories of climate-related financial risks: physical risks, resulting from the effects of climate change on business, and transition risks, resulting from the impact of transitioning to a low-carbon economy.
"Following COP21 and the work of the TCFD, we know that climate change is a risk to the real economy as well as to global financial stability,” says Rémy Rioux, CEO of AFD Group. “Better understanding of these risks is a powerful driver to find new solutions and help avert crises through better quality investments.”
The publication of the TCFD report is in line with the Group’s efforts to improve its transparency and accountability on climate issues and is part of a process to raise its partners' awareness of financial climate risks and encourage them to better identify development opportunities compatible with the objectives of the Paris Agreement on climate change.
In this regard, AFD Group is pleased to support the TCFD, an initiative to make financial systems more climate resilient. It has thus joined 2,500 public and private sector institutions that recognize the importance of improving transparency on climate risk issues.