The Road to the SDGs

decisions. The overall approach and methodology applied at IsDB revolves around four areas: – Governance – Strategy – Risk management – Metrics and targets. X From the risk management perspective, the ESG-related risks are integrated into credit risk assessment at transactional and portfolio levels. X The project-level approach to ESG-related risks comprises: – Identifying project-level ESG risks such as physical risks (acute and chronic) and transition risks such as legal, technology, market, reputation, etc. – Measuring project-level impact on revenues, costs and profitability after adjusting for the ability to adopt and mitigate. X An ESG-adjusted risk rating of the project is arrived at to make an informed decision. X The transactional-level risk assessment is followed with portfolio-level scenario setting and stress testing to come up with the resulting impacts on financial performance of IsDB by considering ESG risks. ACHIEVEMENTS X Under the P5P, IsDB’s policies and guidelines relating to ESG areas have been developed and approved in coordination with the Risk Management function. X IsDB has appointed a renowned consultant to internally develop a project-level assessment of climate- related risks. X IsDB has undertaken a review of its risk rating methodologies that will include an overlay for ESG-related risk, to arrive at a risk- adjusted rating of the financing operations portfolios covering projects, corporates, FIs and countries. X It successfully launched its first Green Sukuk, which quickly became oversubscribed. X An enterprise risk management programme was launched that includes tools for conducting scenario analysis and stress testing to capture the impact of ESG-related risks. X Peer analysis was conducted with other MDBs about their approach to ESG risks. INVESTMENT X IsDB is expected to receive significant financial and non-financial benefits from its ESG initiative. Primarily, the intention is to maintain IsDB’s access to larger financial markets in terms of resource mobilisation, by adopting ESG- related market best practices. X ESG-related models will provide a proactive scenario and a stress testing-related approach to mitigate the related financial risks. X MCs will benefit from IsDB support to highlight and suggest mitigations for ESG-related risks of projects. X Under the P5P, resources have been allocated for risk management staff to undergo the necessary training for full implementation of an ESG-related framework at IsDB. E S G M E T H O D O L O G Y — K E Y F O C U S A R E A S Governance Strategy Risk management Metrics and targets [ 197 ] T H E R O A D T O T H E S D G s | P R O G R E S S A N D A C H I E V E M E N T S