We view climate-related risk as an integrated risk since it manifests through various financial and non-financial primary risk types, including credit, market, liquidity, and non-financial risks. Therefore, our approach integrates climate-related risk considerations into our risk management lifecycle, which includes risk identification, assessment, measurement, monitoring, reporting, control, and mitigation. Risk type Impact to the Bank Climate Risk Drivers Transition Physical Credit risk Directly affects the financial performance of our customers, through additional capital expenditures, potential imposition of fines or increased costs of operations and management. These may also include instances of newer or stricter environmental regulations. Climate physical risks can damage customer assets and disrupt customer operations. Market risk Volatile and downward market valuations and repricing of investments held by the Bank. Liquidity risk Significant withdrawals or drawdown of committed facilities to fund recovery from severe weather events. Inability of customers to repay their financing due to adverse impact from transition to low-carbon economy. Operational risk Disruptions to operations and/or supply chain due to severe weather events. Changes in policies and processes in order to comply with regulations or transition to low-carbon economy. Regulatory/ Compliance Risk Risk of failing to comply with current and emerging climaterelated regulations. Reputational risk Climate-related litigation or negative public perception can impact the Bank's reputation. Potential negative views towards the Bank due to actual or perceived actions or inactions related to our climate progress. Our Processes for Managing and Integrating Climate-Related Risks In 2023, we began developing frameworks and methodologies to strengthen our assessment and measurement of exposure to climate-related risks. Recognising climate risk as an integrated risk, we have tailored these frameworks and methodologies to manage climate-related risks according to the characteristics of the relevant primary risk types. This focus has resulted in considerable progress in understanding and assessing these risks. 167 1 2 3 4 5 6 7 8 9 www.bankislam.com SUSTAINABILITY STATEMENT
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