Climate and ESG Risk Management
With climate-related events become increasingly frequent and severe, and as the Earth's surface temperature continues to rise, the need to accelerate climate action has gained enhanced prominence. For the Bank, environmental and climate-related threats encompass various risks (credit, market, operational, and legal) arising from financial exposure to projects and activities that may contribute to, or potentially be impacted by climate change, air and water pollution, scarcity of fresh water, land contamination, biodiversity loss and deforestation. Recognising the need to understand and address these risks, the Bank has a dedicated team within the Risk Management Group to provide insights and develop expertise to strengthen climate and ESG risk management capabilities. Its climate strategy involves taking into consideration the impact of climate risks both physical and transition—and enhancing our ESG risk assessments as part of its sustainable lending practices.
The Bank has formulated a Climate Risk Management Framework (CRMF) for the integration of the climate risk into the overall risk management framework. The framework also provides guidance on assessing the impact of climate change on the Bank's own operations due to physical risk events. Additionally, it guides in identifying and analysing the impact of both physical and transition risks on the lending portfolio.
Physical Risk Assessment
The consequences of climate change include both incremental effects (a long-term change in the mean and variability of climate pattern) and acute effects (increase in frequency and severity of extreme weather event). The potential impact of physical climate risks on the Bank could be significant, as these can affect the Bank’s own operations and the ability of borrowers to carry on operations due to extreme weather events and changes in environmental conditions.
With regard to its own operations, the Bank has a business continuity management plan, whereby it conducts periodic assessment of the impact of the climate risk on its infrastructure, including business centres, data centres and selected operations hubs, through an external agency at specified intervals. In fiscal 2025, an assessment was carried out in consultation with an external agency for the potential impact of simultaneous occurrence of extreme natural disasters at the Bank’s key primary and alternate locations. Based on the assessment, it was concluded that the probability of simultaneous impact was not significant.
More details are available on page Business Continuity Management of this report.
The Bank undertakes physical risk assessment for top counterparties in the wholesale banking portfolio using internally developed scenarios. The assessment considers factors such as the geographic concentration of borrowers in flood and cyclone-prone regions, asset losses, and the extent of operational disruptions experienced in the last five years. Based on this assessment, borrowers are categorised as high, medium or low risk based on the potential impact of climate change. In addition, rural business loans and a portion of retail portfolio situated in flood and cyclone-prone regions are considered as part of the annual stress testing exercise through application of higher default rates.
The Bank also keeps track of methodologies that are being developed for evaluating the impact of physical climate risks for certain areas and regions in India, depending on the availability of relevant and reliable data. Such an assessment requires, among other things, reliable data relating to physical hazards, vulnerability, and forecasting of such climate risk events. The available climate-related data is characterised by various gaps, such as fragmented and varied sources, diverse formats, frequencies and units. To bridge these gaps, in October 2024, the Reserve Bank of India announced its intention to create a data repository, namely the Reserve Bank—Climate Risk Information System (RB-CRIS), comprising two parts. The first part will be a web-based directory, listing various data sources (meteorological, geospatial, etc.), which will be publicly accessible on the RBI website. The second part will be a data portal comprising data sets (processed data in standardised formats). Access to this data portal will be made available to banks in India in a phased manner. ICICI Bank shall ascertain its pathway for undertaking physical risk assessments accordingly.
Transition Risk Assessment
The identification and impact of assessment of transition risk is performed at a broad sectoral level for top corporate borrowers, especially within the hard-to-abate sectors due to their substantial reliance on carbon-intensive processes and resources. Due to this, these sectors face significant challenges in reducing greenhouse gas emissions. Examples of such sectors include iron and steel, cement, oil and gas, and chemicals. The assessment of transition risk considers principles of ‘relevance’ and ‘proportionality’ at the sectoral level. Relevance considers sector-wise greenhouse gas emissions, transition risk factors and sectoral credit risk, while proportionality is a combination of the exposure size and the tenor rating of the sectors.
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Sectoral Analysis to Understand Transition Risks and Opportunities
The Bank is monitoring transition risk drivers in hard-to-abate sectors through a process of deep-dive analysis based on parameters selected with guidance from the Task Force on Climate-Related Financial Disclosures (TCFD) framework. The focus is on understanding the transition risk drivers, such as policy and legal risk, technology risk, consumer demand, market risk, and associated transition costs. The Bank tracks potential policy risks arising from developments such as carbon taxation mechanisms across geographies and evolving reporting requirements. On the technology side, analysis involves low-emission-based technology alternatives that may pose risks to existing assets and their potential evolution for commercialisation.
The Bank also actively engages with regulators, corporate borrowers and rating agencies, and participates in workshops on ‘climate change risk and their financial impact’, conducted by the regulator and subject matter experts to understand, identify and analyse the key developments and the potential associated impact at sectoral level, as may be relevant to the Bank’sportfolio and business strategy. Regular updates are provided to the appropriate Board committees.
Integration of ESG Assessment in Credit Evaluation
To enhance risk understanding, the Bank has been taking steps to integrate ESG and climate-related parameters into the credit evaluation process for corporate lending. The Bank has subscribed to literature and data periodically published by ESG Rating Providers (ERPs) registered by the Securities and Exchange Board of India (SEBI) to understand the potential climate and ESG-related impact on large corporates in the Indian context. Additionally, the Bank has developed sector-specific risk assessment approaches to gauge the ESG maturity and the associated borrower risks for exposures exceeding a certain threshold.
An ESG risk assessment tool has been developed with a focus on hard-to-abate sectors that are challenging for the transition to low carbon pathways, and sectors with substantial exposure within the Bank's portfolio. In fiscal 2025, the coverage of the ESG risk assessment tool was extended to four additional sectors—namely, chemicals, mining, pharmaceuticals and textiles—bringing the total number of sectors covered to 20. Some sectors for which ESG risk assessment tool is already being utilised include construction, real estate, iron and steel, power generation, petrochemicals, oil and gas, automobiles, wholesale and retail trade.
Borrowers are evaluated based on their responses to two separate checklists designed to assess ESG maturity, inherent risks in their business models, and their ability to respond to these risks. The overall ESG rating is determined by considering both the maturity and risk ratings, with a deflator applied to sectors with high climate impact or to borrowers with low ESG maturity scores.
Maturity assessment parameters encompass several factors, such as existing environmental and social policies, emission reduction targets, and certifications pertaining to safety, quality and environmental management systems. Risk evaluation parameters are designed to appraise factors such as the extent of damage or impact caused by physical climate risks, investments in decarbonisation technologies, frequency of workplace injuries, and any penalties imposed by regulatory entities. The criteria for ESG parameters have been established by drawing upon existing frameworks such as the Business Responsibility and Sustainability Reporting (BRSR) requirement stipulated by the Securities Exchange Board of India (SEBI) for the top 1,000 listed companies in India, sectoral standards as outlined in the International Financial Reporting Standards (IFRS), disclosures from the Carbon Disclosure Project (CDP), and standards set forth by the Global Reporting Initiative (GRI). This approach facilitates a more thorough assessment by focussing on material ESG parameters specific to each sector and enhances the availability of essential information for the Bank.
The Bank has also been participating in various industry and regulatory forums for providing collaborative inputs on climate policy-making for the Indian banking industry.
Scenario Analysis
The Bank annually conducts climate scenario analysis to quantify the impact of climate-related financial risks and assess the potential impact on capital and provisioning. The analysis includes assessment of the potential impact of physical risk on the top counterparties in the wholesale banking portfolio and retail lending, as well as the probable impact of transition risk for the top counterparties within the wholesale banking portfolio. The output of the exercise has been incorporated in the Bank's financial planning as a part of Internal Capital Adequacy Assessment Process (ICAAP).
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Social and Environmental Management Framework
The Bank is committed to financing projects that are environmentally sustainable, socially beneficial, and financially viable. The Bank’s endeavour is to make a positive impact by assessing dynamics related to environmental and social parameters inherent in its project financing portfolio.
The Bank’s Social and Environmental Management Framework (SEMF) requires analysis of specific environmental and social risks as part of the overall credit appraisal process for assessing new project financing proposals. Key elements of the assessment include screening through an exclusion list drawn broadly from the lists published by the International Finance Corporation (IFC) and the list of highly polluting sectors published by the Ministry of Environment, Forests and Climate Change (MoEFCC) in India. The process involves adopting measures such as seeking a declaration from borrowers on critical parameters and stipulating independent due diligence, based on the criteria defined in the SEMF.
Climate Risk Management at Overseas Branches
The Bank is cognisant of regulations applicable to its international banking units and overseas branches in jurisdiction where it operates and has established processes with local branch management to address climate and ESG-related matters. The Bank’s corporate office in India has oversight on the local branch management to ensure adherence to applicable regulations and also leverages developments in the climate and ESG domains across these locations.
The Hong Kong branch has implemented a Climate Risk Management Framework. It has developed tools to assess a borrower’s environmental risk and relies on the Bank’s ESG report for disclosures. In own operations, the branch’s total electricity consumption was 68,848 kWh in fiscal 2025. The market-based emissions from electricity consumption were estimated at 26.16 tCO2e, based on supplier-specific emission factor. The branch in Singapore formulated the Environmental Risk Management Framework in June 2022 and publishes limited climate-related disclosures in compliance with local regulatory expectations. The Bahrain branch submits the ESG report of the regulator and includes relevant officials in training on climate-related risks. In UAE, the branch is tracking regulatory developments and evaluating their applicability based on operational scope. The USA branch is monitoring evolving regulatory guidance and assessing its implications for local operations. In GIFT City, India, the branch has adopted ICICI Bank’s framework for Sustainable Finance with jurisdiction-specific addendum and discloses its sustainable finance portfolio to the International Finance Services Centres Authority (IFSCA) semi-annually.
