The Task Force on Climate-related Financial Disclosures ("TCFD") Recommendations, first launched in 2017, are designed to encourage consistent and comparable reporting on climate-related risks and opportunities by companies to their stakeholders. The TCFD has developed a framework to help public companies and other organizations more effectively disclose climate-related risks and opportunities through their existing reporting processes. The TCFD Recommendations are structured around four pillars:
The Bank is committed to adopting best practices towards environmental risk management and has established a Committee to guide the Board and senior management on development and implementation of its environmental risk management framework. As the measurement practices and methodologies evolve, the Bank shall provide more details to improve the comprehensiveness, clarity, and relevance of the disclosures.
UCO has a Risk Management Committee (“RMC”) to oversee the management of overall risks faced in its operations. The RMC meets on a regular basis to discuss various risk related issues to ensure the effectiveness of policies and procedures in place to mitigate the risks it faces.
The RMC shall be responsible for overseeing the implementation of this Policy and overall environmental risk management framework. The RMC shall oversee the progress of the environmental risk management framework across the Bank, approve changes in procedure, provide guidance, and resolve conflicts (if any). The RMC shall present the progress report and recommend updates for approval from the Board
Further, the existing three lines of defense model shall be leveraged to ensure effective implementation of the Policy. The roles and responsibilities of various stakeholders shall be as described below:
Risk Management Committee: The RMC shall be responsible for overseeing the implementation of this Policy and overall environmental risk management framework. The RMC shall track progress and report to the Board.
Senior management: Senior Management involvement is crucial to the successful implementation of this Policy as they establish the Bank’s requirements and oversee implementation. In cases of unresolved issues or non-compliance associated with a transaction that cannot be resolved by the Relationship Managers and Risk department, Senior Management determines the appropriate course of action to follow, to reduce the Bank’s potential exposure to environmental risk, which may include taking legal action against the client, if necessary.
Risk Team: The Risk team is responsible for developing the Bank’s environmental risk policy in consultation with Senior Management. The team evaluates the risks at the portfolio level and provides assistance to Relationship Managers and Credit Risk Managers in (a) evaluating transaction level environmental risks and (b) client’s performance.
Credit officers: Credit officers are responsible for evaluating the environmental risks at the level of individual transactions and make a recommendation to the Credit Committee, on whether to proceed with a transaction. The evaluation metrics and parameters shall be regularly updated in line with emerging developments in the environmental risk management space.
Credit Committee: The credit approval authorities are responsible for deciding if environmental risk is acceptable to the Bank’s overall exposure to risk before proceeding with a transaction
Internal audit: The internal audit department shall act as the third line of defense and undertake a review of the environmental risk management framework and its implementation in the Bank.
StrategyUCO Bank is fully committed towards unlocking innovative financial mechanisms for achieving its internal and MAS required targets of combating environmental risk. The strategy shall be reviewed on an annual basis and updated in line with emerging evidence and evolving practices.
The Bank has conducted an assessment study and has identified the areas of enhancement in its governance and risk management framework with respect to environmental risk. Further, the Bank has developed a detailed implementation roadmap to integrate and incorporate environmental risk management into its overall risk management framework and business planning. A high-level analysis of the impact of environmental risk on the Bank's exposure to credit, market, liquidity and operational risk has also been undertaken.
The Bank has also put in place an environmental risk identification, risk measurement and a risk mitigation strategy:
1. Risk identificationThe Bank’s risk management framework includes coverage of environmental and climate risks. The Bank’s environmental policy recapitulates its commitments mainstreaming environmental considerations as integral dimensions of business. It enables the Bank to develop processes to recognize, evaluate and monitor environmental impact of its banking operations, to the highest degree possible
As a financial institution, UCO Bank is exposed to material environment related risks through its borrowers, customers and counterparties. In FY 22-23, the Bank identified and enlisted several climate-related risks faced by various sectors, through desk research. Both transition risks and physical risks were included. Transition risks are those that arise from efforts to address climate change, including but not limited to regulatory changes in policies, technological changes or shifts in investor sentiment and customer behavior. Physical risks are climate risks which arise from the impact of extreme weather events such as flooding, draughts and storms. Such events increase the risk to the Bank’s physical assets and pose a risk of service disruption.
To assess and identify the Bank’s exposure to environmental risk from its customers, UCO currently has an internal RAM rating model which it uses to score customers on a scale of UCO1 to UCO7. Further, the Bank is in the process of updating its internal rating model and calibrating it to a scale of UCO1 to UCO10. In the updated model, the Bank proposes to incorporate environment consideration as one of the parameters in its base credit underwriting framework itself. Hence, the Bank has already initiated steps to incorporate environmental risk assessment in its core internal rating model itself and incorporate it as a base parameter for evaluating and underwriting new customers.
Additionally, for high value customers with exposure in excess of USD 10 million, the Bank proposes to overlay the credit assessment currently being performed with an environmental risk assessment by adopting of the Environmental Risk Questionnaire (“ERQ”) released by the Association of Banks in Singapore (“ABS”). The ERQ is recommended for Banks in Singapore to conduct structured discussions with their customers, upskill employees on environmental risk concepts, and simultaneously collect customer data in a standardized format. The ERQ seeks to assess new and existing customers primarily on the following four areas: Risk, Governance, Metrics and Sustainable Financing.
2. Risk measurementIn line with its environmental risk reduction vision and commitments, UCO bank has put in place systems for managing climate-related risks at the organizational level.
The Bank has a formal process in place for the identification of climate risks and opportunities. Environmental risk and climate change related risks and opportunities are evaluated by the risk management committee.
In FY 22-23, ‘Environmental risks’ were added to the Bank’s internal base credit underwriting framework itself, which is an integral part of the management and decision-making process in the Bank. Climate related risks are reviewed annually to establish adequacy of measures taken by the Bank.
UCO shall use the ERQ questionnaire (highlighted in the risk identification process) to categorize its customers as High risk, Substantial risk, Medium risk and Low risk. The customers rated High risk and Substantial risk are monitored more actively and details are collected from customers on an annual basis. Further, where possible and available, the Bank makes an effort to obtain external ESG rating for customers.
3. Risk MitigationUCO tracks the environmental risk exposure to its counterparties as part of the risk measurement process. Additionally, the Bank has listed sectors/industries where the bank has chosen to restrict or avoid lending. The Bank shall endeavor to improve its data collection and monitoring metrics and develop an appropriate approach to disclose climate-related information to enhance transparency. The Bank will publish disclosures on an annual basis, in line with recommendations by local regulator.
While UCO has established metrics and targets to assess and manage climate-related risks and opportunities, the Bank will continue to identify, track, and report climate-related metrics that will enable the Board and Management to more effectively assess the impact of climate-related risks to UCO’s operations, strategy, and targets. In line with the TCFD Recommendations, these disclosures will be subject to materiality. These metrics shall be utilized to assess the impact of these risks over the shortterm, medium-term, and long-term horizons and potentially impact future climate-related targets. UCO will continue to expand partnerships that promote dialogue and collaboration among Singapore banks, MAS and other stakeholders. As UCO continues to implement the TCFD Recommendations, it aims to increase reporting and transparency on climate-related risk issues in future reports through metrics and progress toward targets. UCO will continue to monitor upcoming changes, if any, to the TCFD Recommendations to enhance the reporting process.
